Difference Between Demat Account and Trading Account

When it comes to stock market investing, there are a few fundamental concepts to understand. One of the most important requirements for trading is a Demat account as well as a stock market trading account.

A demat account is a holding account for shares or other assets that have been dematerialized. A trading account’s function is to allow you to transact. Despite the importance of these two accounts, many people do not comprehend how they are related.

What is a Demat Account?

Demat accounts are accounts that have been dematerialized. To put it another way, opening a Demat account is the process of dematerializing or transforming your shares into an electronic format.

Electronically stored shares and securities of publicly traded companies are held in a Demat account. With a Demat account, you can purchase bonds, equity shares, government securities, and mutual funds, as well as exchange-traded funds.

Demat accounts are credited or debited every time you buy or sell shares of a company, similar to bank accounts.Additionally, it streamlines the process of trading shares, which eliminates unnecessary paperwork.

In India, both Central Depository Services Ltd and National Securities Depository Limited have Demat accounts.

What is a Trading Account?

On the stock market, trading accounts are used to buy and sell equity shares. Before, the stock exchange employed the open outcry system. Traders use hand signals and verbal communication to communicate their buying and selling decisions.

Shortly after the electronic system was adopted, the open outcry system of the stock markets was replaced by trading accounts. Internet trading allows buyers and sellers to place orders without having to physically attend the exchange.

Trading will be handled by a real stock market broker, so they will need to open a trading account. Each account has its own trading ID, which is used to conduct online transactions.

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Difference between Demat Account and Trading Account

  • Demat vs. Trading Account Functionality

By debiting your Demat account and selling your securities in the market, each account performs different functions, which is one of the major differences between them.

A Demat account allows an investor to retain their financial instruments in an electronic format. This strategy also enables you to transform your securities from electronic to physical form.

  • Demat Account vs. Trading Account

Your trading account is linked to both your Demat and your bank account in the same way that your bank account is. This technique works by selling your shares in the market after withdrawing them from your Demat account.

Demat accounts are places where you store securities and claims that you purchase on the market. Demat account functions like a savings account instead of a trading account, which functions as a current account.

  • Demat vs. Trading Account: What’s the Difference?

Both accounts are required for any stock market trading, regardless of how different they are. When investors buy stock in a company, they use a trading account. Furthermore, stock claims are credited to your Demat account, from which they are deducted from your bank account.

When you sell shares on your trading account, money is deducted from your Demat account, and the stakes are subsequently sold on the market. The entire selling earnings will be paid back to your bank account. As a result, a Demat account and a Trading account must both trade on the stock exchange.

Demat Account  Trading Account 
It is used to handle the electronic version of the financial securities in a safe way  The trading account helps to transfer our financial instruments from one account to another account in a very easy way. 
We can’t make any transactions or we don’t have the option of making transactions. All the transactions related to stocks will take place in a trading account only
The Demat account charges are paid annually by the investors. Trading accounts are usually free of cost but some companies do charge amounts.

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How to open a Demat Account

Following these steps will help you open a Demat Account:

Step 1: To open a Demat account, you must interact with a depository agent or participant and fill out an application. National Securities Depository Ltd and Central Depository Services (India) Ltd are two depository operators that provide access to the list of depository participants (DP).

Step 2: Together with the account opening form, provide copies of your ID and address proofs.

Step #3: Sign an agreement with the DP outlining your rights and responsibilities as an investor. Ensure to get a copy of the contract as well as the corresponding fee schedule.

Step #4: The DP establishes Demat accounts and assigns Beneficial Owner Identification Numbers.

How to open a Trading Account?

Following these steps will help you create a trading account:

Step one is to select a brokerage firm or broker.

Step #2: Before making a decision, compare brokerage fees and services.

Step #3: To open an account, please contact the shortlisted broker.

Step #4: Complete an account application form, which may include KYC information. Proof of identification and address must be submitted with the application.

Step #5: An application verification process is required.

Step #6: Learn about your trading account and begin trading.

Final Thoughts

Investors now have access to demat and trading accounts, but you must first research the stock markets and the instruments traded there before investing. Market risks apply to stock investments, which should be accompanied by professional advice.


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Frequently Asked Questions

Which is the best Demat and trading account?

Upstox is my current pick for the finest Demat account establishing website in India for 2021. Upstox, a bargain broker based in Mumbai, is funded by a number of notable figures, including Ratan Tata. The company is used by over 40 lakh dealers. Upstox has inexpensive brokerage fees and advanced charts when compared to other brokers.

Is Zerodha a Demat account or a trading account?

One of the services provided by Zerodha is a Demat account. As part of a 2-in-1 account, the user gets access to both a trading and a Demat account, allowing for seamless transactions between both. Zerodha holds securities as a Depository Participant (DP) with Central Depository Services Limited (CDSL).

Can I open a Demat account without a trading account?

A Demat Account is not required to have a Trading Account. If you wish to keep your stock shares following a successful Initial Public Offering (IPO), you should open a demat account. If you wanted to sell these securities on the stock market, you’d need a trading account.

Can you have Two Demat accounts?

It is permissible for investors to use the same PAN number to open several Demat accounts. A depository participant, on the other hand, cannot have two Demat accounts open at the same time. Investors contact with India’s two depository institutions that provide Demat services through DPS. CDSL and NSDL

Can I buy shares with a Demat account?

To buy stock in the stock market, you’ll need a trading account and a Demat account. Demat accounts are used to keep track of your claims. It is not possible to trade on your Demat account. To transact, you must utilize your trading account.

Which Demat account is free of cost?

Motilal Oswal is an Indian investment bank. Customers can use their Free Demat Account to access a variety of financial products and services provided by the company. Annual maintenance fees (AMCs) are not charged on the Motilal Oswal Demat account.

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