Investing in the stock market will bring you good returns. However, when you are investing in the stock market, there are certain tools one must be aware off. This is the first step any first-time investor must take. One of the main differences a stock market investor must be aware of is the different types of account.
When investing in the stock market, you must first understand the difference between the accounts required for investing. Here is what you need to know when it comes to understanding the difference between the Demat account and the trading account.
What is a Trading Account?
The first step that any stock investor must take is opening a trading account. This account acts a platform for buying and selling. It also allows an investor to connect to the stock market, where one can make the necessary expenditures. When you purchase or sell stock, you will need funds to do so. Through this account, you can connect your trading account with your bank account. Once you transfer funds from your bank account to the trading account, you can then purchase or sell any stock. In the end, the trading account acts as an intermediary of the Stock Market, Bank Account, and Demat Account.
What is Demat Account?
When investing in the stock market, you will need to invest your stocks in a particular account. In this case, the stocks that you purchase is stored in the Demat account. In this account, all your stocks are held in an electronic format. According to the Depository Act of 1996, every equity investor must have a Demat account in order to dematerialize or convert your stocks to store them in the electronic format. This is why plenty of broking firms offer a trading account with the Demat account.
How do these accounts function?
Once you open both accounts, you will first need to transfer your funds from the bank account to the trade account. When you purchase stock, the financial value equivalent to the stock will be deducted from your trading account. In the same way, when you sell stock, the financial value equivalent to the purchase is deposited in the account.
Benefits of holding a 3 in 1 account
When investing in the stock market, there will be a requirement to use all three accounts, namely, a bank account, trading account and Demat account. Plenty of banking institutions offer a 3 in one account when you indicate that you want to trade in the stock market. However, you would need to satisfy the minimum requirements of all three accounts separately to maintain it for a long time.
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