Over the decades India has moved to electronic trading in stock markets. A person interested to trade in stock markets should have a trading account. Trading account is the way of buying and selling of stock transactions. Whereas a demat account is the place to store the stocks bought by a person.
For example: If you want to buy 100 shares of wipro and would like to sell it off when the market closes, you will need a trading account to do so. Or if you would like to hold the shares in your account, these 100 shares of wipro will be stored in our demat account. The buy transactions are done through the trading account but the shares will be stored in your demat account.
Each trading account will have a trading ID which will be used by the exchanges to identify every transactions made.
Check the above image to know in detail about the entire transaction works for a stock trader/ investor.
How does the buying and selling of shares happen?
Step 1: A trader transfers money from bank account to his trading account
Step 2: The transaction with the exchanges happens in trading account. That is a buy order is placed and the shares are bought from the stock market using the trading account.
Step 3: The shares if not sold are held in the demat account.
Step 4: When you sell the held shares they get debited from the demat account.
On understanding the above content it is clear that a trading and demat account is really essential to trade in a stock market.