How are Demat Account, Trading Account and Bank Account linked?

Automation in the financial industry has transformed the physical transaction system into a digital system. With the advent of financial technology, stock markets and banks smoothly execute digital trading transactions. In stock market trading, Investors buy and sell several types of instruments which are held by online depositories. For this buying and selling, respective traders can transfer funds through an online bank account. 

In Indian financial markets, investors need three types of accounts to perform stock trading. These are the online Demat account, Trading account, and your Bank account. With a proper linkage among these accounts, investors can trade efficiently in any type of securities. Demat account benefits have influenced stock market participants to initiate trading with this account. 

Before understanding how these three accounts are linked with each other, you need to know the concepts of each account. 

Demat account

A demat account is an electronic safe house for financial securities such as stocks, bonds, derivatives, mutual funds, and other securities. It deals with different types of securities whether direct market assets or other units. It intends to digitally protect financial securities with two major depositories namely National Securities Depository Limited and Central Depository Security Limited. 

Demat account benefits:

In digital trading mechanisms, a demat account offers you several benefits that can be explained as follows:

• It protects different types of securities from physical theft and damages. 

• It keeps your traded securities digitally in large databases. Thus, it reduces space requirements. 

• It ensures fast delivery of securities from seller to buyer.

• You can open it within 24-48 hours. This fast account activation influences new investors to start trading in the stock market.

Trading account

Similar to a demat account, a trading account is an important component of online trading. It performs the actual buying and selling of securities. If you are going to buy a direct stock market instrument, you would be required to use this trading account. Demat account helps to keep securities whereas this account helps to buy and sell securities. 

Along with a demat account, you are required to open a trading account with any brokerage firm. It also provides several benefits to trade in the stock market. You can understand its benefits as follows:

• You can buy and sell any type of security with a trading account. 

• It provides you notifications and recommendations related to traded securities.

• All securities are available at one point. Thus, you can buy any type of instrument at one point of time. 

• It ensures smooth trading, especially in derivatives.

Bank account

Along with these two accounts, a bank account is the most important source to transfer funds from one trader to another. In general terms, a bank account is safe for your deposited funds. Banks keep your funds in your unique account. 

In digital stock market trading, seller and buyer exchange securities and funds between each other. In this transaction, an online bank account allows instant transfer of funds between traders.

To execute online trading in any stock market, these three accounts are required to be linked together. 

How are Demat, Trading account, and Bank account linked together

In real-time stock market trading, demat, trading, and bank accounts function simultaneously. For example, if you are going to buy a stock of a company listed on Bombay Stock Exchange, you will open a demat account with benefits.  After that, a trading account will assist in buying a selected stock which will be kept with a Demat account. For this buying transaction, your bank account will instantly transfer funds to the seller. 

In this way, these three accounts are always linked with each other to perform better and smoother trading activities.