One of the core relationships that are built through a trader and broker is using a Demat and trading account. It's required that one must open demat account and a trading account so they can buy, sell, or hold securities in the stock market. To do so, however, one needs to be aware of the different types of Demat accounts and trading accounts they can set up. This will ensure that you are trading the securities you want to at the frequency that you require. But first, what is a Demat account?
What is a Demat account?
Demat is short for ‘dematerialized’ meaning that the securities held in a Demat account are electronic in nature. These electronic securities are not only easy to access but also safer. Prior to 1996, when the first Demat account was introduced to India, traders were burdened with physical copies of their trades which needed to be verified at every juncture. Trading was not only tedious but also occurred at a lower frequency due to the burden of managing securities. Now it is much more seamless. Here are the various Demat account types that have made trading the easy and accessible process it is today.
Types of Demat account
Fundamentally, there are three different types of Demat accounts available to traders. Each of these Demat account types fit different needs. These are as follows:
1. A Repatriable Demat account: Even Non-resident Indians can have the option to trade Indian securities and this can be done using a repatriable account. It allows traders to transfer funds abroad. Hence, to be able to use this type of account one needs an association with a Non-Resident External (NRE) account bank account.
2. A Regular Demat account: This is a Demat account that is recommended to any traders who reside within India.
3. Non-Repatriable Demat account: For non-resident Indians in particular, this is another Demat account which is recommended. Funds cannot be transferred abroad through a non-repatriable Demat account. To be able to use this type of account one needs an association with a Non Resident Ordinary Account bank account.
Types of Trading Accounts:
Now that we have captured the various Demat account types, here are the different types of trading accounts.
1. Equity Trading Account: Having an equity trading account is more than enough for trading in futures, options, and equities. Even currency derivatives can be dealt with using one’s existing equity trading account as well. However, you cannot trade in commodities with an equity trading account.
2. Commodity Trading Account: As the name suggests, a commodity trading account allows one to trade in commodities like wheat, coffee, bananas, etc.
Benefits of trading using a Demat account
Trading using a Demat account comes with many benefits. Some of the core benefits of using a Demat account to trade are:
- Reduced costs: Using a Demat account to trade is a lot more cost-effective than trading used to be. This allows a higher frequency of trades to be conducted electronically.
- Accessibility: One’s securities are safe and easily accessible in their dematerialized form.
- Quicker Transactions: Trades can occur within seconds due to securities being electronic in their form.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account