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

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's try to understand the Demat account and Trading account, the purpose of both the account and how necessary 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, then he can use the Trading 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.
 

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

  • Yes, that is perfectly possible. If you are going to apply for an Initial Public Offering (IPO), you only need a Demat account to hold the shares on the allotment. 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 when you want to store your shares in electronic form. Therefore, if you opened a Trading account with an intention to trade only in options and futures, then 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, the Demat account is a must.
 

Why should I open both Demat and trading accounts together?

  • In order 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 analyse them to improve trading choices over time.

Economical

Trading before the introduction of dematerialisation was a monotonous and burdensome affair due to the usage of physical stock certificates. Moreover, usage of the physical form of shares costed 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, therefore made trading more cost-effective.

Accessibility:

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.

Opening a trading account in India is easy, and you can explore a variety of trading opportunities. With the entire process becoming more efficient online, you need to find a reliable broker, submit documents and start the trading journey.

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 purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product.

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