Trading Account v/s Demat Account

Trading and Demat accounts are two fundamental requirements for trading in a stock market. Investor needs to understand the primary difference between the two.

Trading Account:

• • A Trading Account is used by an investor to purchase and sell stocks/securities. Having a trading account gives you access to all the stock exchanges throughout the country like NSE (National Stock Exchange), BSE (Bombay Stock Exchange), NCDEX (National Commodity and Derivatives Exchange), and MCX (Multi Commodity Exchange).
  • To make purchases through this account, one must link their bank account with it. Whenever one plans to buy any share/security, the person has to transfer the money from the bank account to the trading account.
  • Once a trading account is opened, a Unique trading number is allotted. This number is used to trade in securities.
  • You do not have to pay any charges for opening a trading account. But once you start trading, you need to pay brokerage, GST, STT, Stamp duty, and various other charges involved.
  • If you wish to trade only in futures, options, and currency derivatives, a Demat account is not required. You can open a trading account. This is because futures and options in India are cash-settled and do not result in delivery.
  • Opening a trading account allows the ease and flexibility to trade from any place. You can do trading sitting at your home or even while traveling.

Demat Account:

• • A Demat account is used to store various investments like shares, bonds, mutual funds, government securities, etc. in a dematerialized/electronic form. A Demat account is just like your bank account wherein you are allowed to hold your money, deposit it or withdraw it.
  • It can be opened even if you do not wish to buy or sell any shares/securities. It is not mandatory to maintain any balance of shares/securities in this account. It means that you can have zero balance of shares in the Demat account.
  • If an investor wants to apply for an IPO, he/she must have a Demat account. You need not have a trading account to apply for an IPO. However, if you plan to sell those shares in the future, you need a trading account.
  • This account is also used for dematerializing the shares by converting the physical shares into electronic form.
  • When you open a Demat account, you are allotted a Demat account number that allows you to settle your trades electronically.
  • Opening a Demat account requires Annual Maintenance Charges or AMC. Sometimes, it also involves other charges like transaction fees, custodian fees, etc.

Difference between Trading Account and Demat Account:

The basic difference between a Demat Account and Trading Account is that a Demat account holds the shares and securities in digital mode. But a trading account provides the interface to buy and sell shares in the stock market.

In simple terms, a trading account is used to place buy and sell orders in the stock market. The Demat account is used as a bank where shares bought are deposited and sold are withdrawn.

Both these accounts are crucial for trading in the share market. When you buy/sell a share, you use your trading account. The money gets debited/credited to your bank account. The shares bought/sold get debited/credited in the Demat account.