Dematerialization is nothing more than a paperless trade which has been introduced a few years ago. In this process, the physical certificates are transformed into the electronic one. It is often misunderstood with an operations account that acts as an intermediary between the demat account, and the savings bank account. To invest in securities in a stock exchange, there are certain requirements that must be met. One of these requirements is that an investor must have a demat account, and a trading account. In this article, we have tried to clarify the difference between a demat account, and a trading account.
Demat Account Definition
Demat expands to Dematerialization which refers to a process of converting physical certificates into paper in computerized format. After the conversion of the securities, they are transferred to the investor’s demat account. In accordance with the depositary act, it is mandatory for investors to have a Demat Account to make a transaction in the financial market. So, the investor opens the account when registering with the stockbroker. There are several merits of a Demat account that are:
- Immediate credit for the issuance of bonds / rights to the shareholder’s account.
- There is no risk of loss, forgery and theft.
- Low transaction cost.
- No stamp duty is paid.
Definition of trading account
The term commercial account refers to an account that makes it easier for the investor to buy, and sell securities. In this account, the securities are deposited in the investment broker for trading purposes. The account acts as a bridge between the savings bank account, and the Demat account of the account holder. Let’s understand how these three accounts work. Let’s say you have a stock of A Limited in your Demat account, and want to buy shares of B Ltd. Therefore, you need to transfer money from your savings account to your bank account. Now, you can buy shares of B Limited either from the stock market or from a merchant by transferring money to the seller’s business account.
In the same way, if you want to sell the shares of A Ltd., you must recover your shares from a demat account, and transfer them to the trading account. After that, the shares are sold in the stock market and the money earned is transferred to your savings account.
In summary, a demat account is an account that has securities in non-physical form, while a commercial account plays an important role in the purchase and sale of securities. In a purchase transaction, the trading account removes money by saving the account, buying shares and transferring them to a demat account. And while selling shares, the account takes actions from the demat account, sells shares and transfers money to the account. If you now understand the differences, you are suggested to always choose the best stock trading platform such as Trade angel broking to make your stock investing genuine, and trustworthy. If you want to know more about stock trading, visit the website, and talk to the experts.