What is a trading account?
Trading account is a type of investment account where you hold securities, cash and other types of investment accounts such as brokerage account. A trading account allows you to buy and sell your assets on the go and that too within the same trading session. Some of the key factors that differentiate a trading account to other investment accounts are:
- Level of trading activity
- Purpose of the activity
- Risks involved in the activity
Trading account is usually used by traders that are involved in day trading. They often use it for long-term buy and hold strategies. As the purpose of the different traders and investors differ, it becomes essential to have a special account through which these types of transactions can be done.
A person has to register online to build an online trading account with a stockbroker or a firm. With the trading account, they can perform the stock market trade of buying and selling of stocks. For every account, there is a unique trading ID the unique trading ID is used for conducting transactions and track them. Also, as per a trader’s requirement, a broker can offer different trading account features.
Difference between Demat and Trading Account?
A Demat account differs from the trading account on the aspect of its usability. A trading account is used to perform transactions — for buying and selling the stocks. But a Demat account is used as a bank where the bought credited are deposited and from where the sold shares are debited.
Here are some basic differences between the two accounts:
The functionality of a Trading Account Vs a Demat Account
One of the basic differences between the two accounts comes in the functions that the two accounts perform. A trading account is just used for buying and selling of securities. This means when you are making a transaction from your trading account (buying or selling a stock) your Demat account is credited or debited accordingly. A Demat account thus just helps a person to keep all the financial instruments in one place in the electronic format.
The Nature of a Trading Account Vs Demat Account
A trading account functions in the same way as your current bank account it would link to your bank account and Demat account and allows you to buy or sell your securities online, that is when you are making a transaction or withdrawing something from your account or crediting it, it becomes a medium to do that, but your information is stored in the Demat account only.
Demat account is the place where you can see the transaction history and all your financial instruments. It doesn’t help you in making any transactions, it just stores the information. Also, a Demat account doesn’t store the information of any transactions made in intra-day trade, but you can use a trading account to do it.
The Role of a Trading Account Vs Demat Account
Both accounts are highly essential for trading in the share market. When a trader makes any transactions, he/she is using a trading account to do so. And when the transaction is successful, your Demat account and bank account is debited or credited. You can simply track all your transactions in the Demat account. Your Demat account is linked to your bank account from where you make all the transactions. Thus, it is mandatory to have both a Demat account and a trading account.
VIDEO: Learn the Basic Concepts & Process of Demat Account & Trading Account
Many investors are confused between Demat & Trading account and where which is used. A most common misconception of commodity trading is that you can buy/sell commodities in the cash market, just like stocks of a company. In the equity market, you trade though cash and F&O but in commodity trading, you trade via F&O only.