Trading account & Demat account have two different purposes altogether although they are closely interrelated. Demat account is used to hold the shares/ stocks/ securities in the Dematerialised form, whereas the trading account is the intermediary between the demat account & the savings bank account of the investor. Demat account is only required if you want to hold shares in demat form. So, if you have opened a trading account and only intend to trade in futures then demat account is not required.
TRADING ACCOUNT:
Trading Account is an intermediary of the Stock Market, Bank Account, and Demat Account.
A trading account is used for placing buying & selling orders in the stock market. The main transaction of shares is done through the trading account. Trading account is mostly for traders in derivative segments such as Index, stocks, Commodities, Currencies futures and Options and specially for those who trade in Cash segment.
Trading account is the interface/ trading platform for buying and selling stocks/ shares. To the market. The trading account connects to a stock market, from where you buy/sell stocks. The bank account must be linked to the trading account as you need to buy stocks. First, you have to transfer the fund from Bank Account to Trading Account. Once the fund available in Trading Account, then one can buy stocks from the stock market.
DEMAT ACCOUNT:
On the other hand, Demat account is used as a bank where shares bought are deposited in, and where shares sold are taken from. Having a demat account is not only hassle free, but also the most convenient & smart way to trading. If you somebody who enjoys trading with shares/ stocks, then having a demat account is a must without any extra thought. If you are a beginner, you may also choose a broker to open your demat account who will always charge you less but provide you best platform and support. During the time of online trading, a demat account number is required to enable electronic settlements of all the trades. Demat account functions like a bank account, where you hold your money and respective entries are done in bank passbook.
There is a central database of all DEMAT accounts through you can buy or sell shares are: “Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL)”. But, whereas a Depository participants (DP) are the intermediary who are authorized to offer Demat services.
Before trading your shares online there are couple of documents that you need to keep handy for opening a demat account. These documents are must to have your Demat account opened. Ensue you have the documents available before opening the account.The author of this article is a successful fund manager. He has been trading professionally since last 15 years & is an author of a leading book on Financial investments.