1.19What is a Trading account?
1What is it?
A trading account is the account you use to place buy and sell orders. It sits with your broker and connects your bank account to your demat account.
2Why does it exist?
The demat account only stores shares. The trading account executes trades. You need both. Most brokers open them together.
3Real-life example
The demat account is your wardrobe where clothes are kept. The trading account is the shop counter where you buy and sell clothes.
4Diagram
- 1Bank account: money
- 2Trading account: places orders
- 3Exchange: matches the trade
- 4Demat account: shares stored
5Quick revision
- A trading account places orders.
- A demat account holds shares.
- Both are usually opened together with a broker.
6Knowledge check
Q1. Which account executes your buy order?Show answer
The trading account.
Q2. Which account stores your shares after purchase?Show answer
The demat account.
Q3. Do you need both to invest in shares?Show answer
Yes.
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