Recently I was surfing through a few blogs and one of the blogs talked about the difference between the Trading account and the Demat account. So let me take this topic up here also.
Share trading in earlier times used to be in terms of paper certificates. I do remember my father used to show me the share certificates when I was a kid. During those times, the certificates were the prove that you hold shares in the company.
But with the growth in technology and the increasing use of computers, the shares also went online. Now the shares are in the form of electronic units. The papers shares are now Dematerialized.
Now when the shares are in the form of electronic units, there should be some way that they should be kept accounted for. For this, there are 2 bodies under which takes care of your electronic units. These are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
One has to get an account open with either of them, where one can get his / her dematerialized shares deposited. These are accounts are thus called Demat accounts.
Now you have got your Demat account opened with one of the depositories and you are ready to trade. But wait, how will you trade and where would you trade?
If you want to trade in stock exchange, you cannot do it directly. Only stock exchange members can trade at stock exchanges or the brokers.
Brokers are those type of stock exchange members who trade in the stock exchanges on behalf of others, i.e. investors such as you and me. They, in turn of trading for us, charge us their fees called brokerage.
Now, these brokers have so many investors with them, so they have to maintain accounts for each of them. Through these accounts, the investors can provide their brokers with funds, make buy/sell orders, keep track of transactions, keep account of funds, etc., in short everything that is related to your daily trading. Thus, these accounts are called Trading accounts.
There are many brokers which are there in the market with which you can get your trading account opened. One should prudently choose a broker with which you would like to get your account opened as different brokers can charge you competitive brokerage. Some brokers also give additional services, some for additional fees and some services just free of cost.
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