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Why do I need to open Demat and Trading accounts to start trading?

23 Apr 2021 0 COMMENT

On many occasions, you may have heard these terms Trading Account and Demat Account in the context of the investment in the securities market. Let us try to understand the meaning of a Demat account and a Trading account, the purpose of both these accounts, and their necessity to invest in the securities market.

A Demat account or Dematerialised Account provides you with the facility of holding securities in electronic form. During online trading, shares are bought and stored in a Demat account, facilitating easy trade for you. You can use your Demat account to store all your shares, government securities, exchange-traded funds, bonds, and mutual funds in one place.

On the other hand, a Trading account refers to funds and/or securities that you may have deposited with a financial institution or broker for speculation.

For example, if Mr. Hiren wants to invest his savings in the securities market, then he can use a Demat account for holding securities for an extended period. And if he wants to have a particular share for a shorter period, he can use the Trading account.

Additional Read: How to Buy & Sell Shares in Demat Account?

What is the difference between the Demat account & the Trading account?

The basic difference is that a Trading account captures your capital market transactions over a while. In contrast, a Demat account maintains the holding of shares and other securities by you at a given point in time.

Additional Read: Demat Account v/s Trading Account: Know the Difference

Is it possible to have a Demat account without a Trading account?

Yes, that is perfectly possible. For instance, if you are going to apply for an Initial Public Offering (IPO), you need only a Demat account to hold the allotted shares. If you only want to keep these shares and do not want to sell them, then the Demat account alone will suffice. However, if you're going to sell your shares, you must have a Trading account first. You can sell the shares only after our Trading account is activated, and your Demat account is linked with it.

Can a Trading account exist without a Demat account?

A Demat account is required to store your shares in electronic form. Therefore, if you opened a Trading account to trade only in options and futures, a Demat account is not required. That is because futures and options in India are cash-settled and do not result in delivery. However, if you intend to deal in the equities, a Demat account is a must.

Additional Read: How to Invest without a Demat Account?

Additional Read: Can I trade without a Demat Account?

Why should I open both Demat and Trading accounts together?

To make use of potential opportunities posed by the securities market, you should open a Demat and Trading account both at the same time.

Following are the benefits of opening Demat and Trading accounts together:

Convenience

With an online Trading account, you can conduct trades from anywhere during market hours. You can also keep track of all your transactions and analyze them to improve trading choices over time.

Economical

Trading before the introduction of Dematerialisation was monotonous and a burdensome affair due to the usage of physical stock certificates. Moreover, using the physical form of shares cost more to the traders in terms of stamp duty, handling charges, documentation, etc. With the advent of the Trading account, these costs have been done away with, thereby making trading more cost-effective.

Accessibility

An online Trading account gives you access to your trades and trade details via computer or mobile phone. You can also track their price movements in real-time.

Additional Read: How to Open Demat and Trading Accounts?

Conclusion

A Demat account and a trading account are two facets of the same coin. It becomes crucial to have both versions for a wholesome journey in stock markets. You can leverage the market conditions and manoeuvre your investment and trading strategy to increase your gains and control your losses when you have both these accounts. These days, many banks, financial institutions, and brokers offer a comprehensive account or a 3-in-1 account to investors. It includes a Demat account, a Trading account, and a Bank account. Opening such a 3-in-1 account turns out cost-effective and result in quicker transactions and settlements. You can open such an account easily and explore various trading opportunities. And with the entire process becoming more efficient online, you only need to find a reliable broker and submit your documents to start the trading journey.

Also Learn: All about the 3-in-1 account

FAQs

   1.  Is it necessary to open a Trading account where a Demat account is opened?

No, it is not necessary to open a Trading account where a Demat account is opened.

You can open your Trading account and your Demat account with different entities. However, when they are opened with the same broker, bank, or financial institute, the transfer of funds and securities is seamless and usually quicker. Moreover, since Trading and Demat accounts work in tandem for trading, if you ever face a transaction glitch, you can resolve it faster when both your accounts are with the same entity. Having said that, you could check and weigh the advantages of holding them with different brokers before making your final call.

Additional Read: How to choose the best Demat Account in India?

   2.  Is it necessary to open a Trading account?

No, it is not necessary to open a Trading account unless you want to buy and sell securities from/to the financial markets. If you do not want to trade shares and other securities, you will not need a Trading account. For instance, if you are interested in applying for shares through an IPO, you will need only a Demat account and not a Trading account. But, if you want to sell the shares you have purchased through an IPO in the secondary market, you will need a Trading account.

   3.  What is the purpose of opening trading account?

The primary purpose of opening a Trading account is to easily facilitate the trading of shares, government securities, bonds, ETFs, etc., and make profits from these transactions. You can use your Trading account to execute high-risk intraday or short-term trades where you quickly close the trade to realize profits. You can also use your Trading account to execute relatively low-risk long-term trades where the investment tenures may be for years.

Additional Read: What is Trading Account & How it Works? - An Overview

Disclaimer-

ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No: 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purposes and may not be used or considered as an offer document or solicitation of an offer to buy or sell or subscribe for securities or other financial instruments or any other product.