What is Trading A/c, and how it differs from Demat A/c?
A trading account is an interface between Demat accounts and investor banks that enables easy trading of equity and securities. Shares bought through this account are credited to the investor Demat account within 2-3 days. Similarly, sold shares are debited from the Demat account, and the sale proceeds are credited to the trading account.
Types of trading accounts
The term trading account covers multiple varieties of accounts that it carters to with the following use cases and types:
- Cash Account, where the client shall pay the total amount of all the purchased securities. Herein, the client cannot borrow friends from the brokers for their transactions.
- A Margin Account is where the client may borrow funds from the broker for trading purposes. Despite a certain level of risk involved with this account category, it gives investors an edge to purchase more than they could with their capital. However, you are bound to pay the broker despite any losses incurred.
- Commodity Trading Account enables trading in primary economic products, such as gold, crude, sugar, rice, etc., instead of manufactured products.
- Option Account facilitates clients to buy/sell security options at a given rate and time.
- An Equity and Derivatives Trading Account is a kind of account that is opened with the trading member of BSE or NSE. A derivative is an underlying contract whose value depends on some agreed-upon asset or security.
- Share Trading Account facilitates the trading of shares. While there are multiple share trades that you can execute, no other trades are permissible through this account.
A trading account enables investors to trade Stocks, ETFs, Gold, Forex, and derivatives whilst using trading limits.
Here are a few benefits of trading accounts:
- No Physical transactions or trades are required. Hence, these are easy to set up and offer telephonic and online access.
- Easy depiction of the Profit & Loss situation in the portfolio. A trading account effortlessly shows the investor’s portfolio situation and the stocks responsible for the same. This further enables easy decisions for the investors.
Differences between Trading and Demat Accounts
The terms trading account and Demat account are often used interchangeably. However, there is a thin line between the two. Here is how they differ:
- Functionality: A Demat account’s essential function is to keep the financial instruments in a digital format. However, a trading account assists in facilitating the process by debiting the claims from the Demat account and selling them in the market.
- Nature of Account: The trading account performs the job of a current account in the bank by linking your Demat account to your bank account. However, a Demat account reflects the current holdings of shares and securities of the investors.
- Role in IPOs: An investor with a trading account can trade in the derivatives market in futures and options, as this market does not require a supply of shares. However, an investor must have a Demat account to participate in IPOs or share trading.
- Approval of SEBI: Approval from SEBI is not required to open a trading account. On the contrary, approval from SEBI is mandatory to open a Demat account.
While the difference between various trading accounts and a Demat account is established, it is imperative to understand and evaluate your financial goals before leaping. It is always advisable to first become an investor and begin trading once you are comfortable with the market. To know more about trading and investing, head to Klevertrade, and feel free to browse through their knowledge corner.
For an effortless trading experience, it is important to understand the utility of various accounts. Here is your chance to learn about a trading account benefits and how it differs from a Demat account.