difference between demat account and trading account

If you want to understand the difference between a Demat account and a Trading account, this post is for you. In this article, I will explain how a Demat account and a Trading account work and discuss the account opening and charges for these accounts.

Meaning of a Demat Account

A Demat Account is used for holding financial securities such as stocks, mutual funds, Initial Public Offering, ETFs, and Government securities in an electronic form from the time you buy them until you sell them. Demat account was introduced in 1996 in India.

Until then, Investing in the share market involved paperwork and physical share certificates. While physical certificates had a high chance of being lost or damaged, the Demat account has addressed this issue in a meaningful way.

Even though a Demat Account is ideally used for delivery positions, it has become mandatory to open a Demat account whenever you open a Trading account, even for Intraday Equity trading. In the case of an equity Intraday, a Demat account will be needed to close and settle any open positions that are not closed by the day's end.

A Demat account is more useful in investing when you want to hold your positions for months or years. However, one thing to understand is that a Demat account alone can't let you square off your position. The Trading account comes into play whenever you want to square off your position.

Meaning of a Trading Account

A Trading Account is needed for online share trading and helps you buy and sell shares in the stock market across the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), National Commodity and Derivatives Exchange (NCDEX), and Multi Commodity Exchange (MCX).

The difference between a buy and sell order decides your profit and loss. When you trade on any exchange, the exchange receives your orders through a Trading account.

A Trading account helps you manage your buy and sell orders. It helps you set and modify a Stop Loss and Target. Besides, a Trading account displays your profit and loss at the end of every trade.

However, you need to link your bank account and fund your Trading Account before starting to trade. Remember that you have to pay brokerage and other charges on every trade.

4 Important Differences Between a Demat Account and a Trading Account

Demat AccountTrading Account
No funds are required to hold the securitiesHelps in buying and selling securities Equity, F& O, Currency, Commodity, etc.
No technical tools are required in a Demat accountFunds required to trade securities
It comes with market data and technical toolsComes with market data and technical tools
DP charges and AMC involvedBrokerage charges involved

Demat Account Opening Process

SEBI has made it mandatory to have a Demat account with a Trading account for Equity Intraday. However, it will not be required if you are into Intraday trading and trade futures, options, and currency derivatives since they are paid in cash.

Interestingly, You can open a Demat account first and then a Trading account, or you can open both simultaneously. You can apply for a Demat account online or offline at your convenience. The process of opening a Demat account is the same as opening a Trading account.

It's also essential to bear in mind that some brokers charge account opening and annual demat charges. However, the demat account charges may vary from broker to broker.

You can open a demat account with a reliable stockbroker. Many online brokers are available these days to open a demat and trading account with, and some of the leading online brokers are Zerodha, Upstox, and Groww. 

Trading Account Opening Process

The trading account opening process involves the following steps:

  • Start the account opening process with a reliable broker
  • Complete the mobile number and email verification
  • Fill in the account registration form
  • Submit relevant documents for address and identification like PAN card, Aadhaar, etc.
  • Link your Trading account with your savings account
  • Complete KYC and Aadhaar OTP verification on NSDL
  • After that, the application will be reviewed and verified by authorities in 24 to 48 hour
  • Once verified, login details will be emailed to your registered email ID.

Conclusion

Knowing the difference between a Demat account and a Trading account is essential for anyone just stepping into the world of trading and investing. In this article, I have explained the differences in a simple way for a quicker understanding.

After reading this article, I hope you have gained good clarity on the differences between a Demat account and a Trading account.

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