If you’re a beginner investor, you’ve probably wondered what the difference is between a Demat and a Trading account.
People have been confused by these terms in the past and have even assumed that they are interchangeable.
Both of these accounts, however, are distinct entities that are dependent on one another to some extent.
Both of these accounts have played a significant part in increasing India’s trading sector, as it was only after the introduction of these accounts that more people began trading.
This blog will go over the differences between the two accounts in more detail in several sections.
What is a Trading Account?
When someone wants to buy stocks, the first thing he must do is open a trading account. This serves as a platform for buying and selling.
This trading account is linked to a stock exchange where you can purchase and sell equities. To acquire stocks, you’ll need money.
As a result, you’ll need to link your trading account to your bank account. You must first transfer funds from your bank account to your trading account.
When funds are available in a Trading Account, they can be used to purchase equities on the stock market. As the name implies, a trading account is a platform for buying and selling equities on the open market.
As a result, a Trading Account serves as a link between the Stock Market, a Bank Account, and a Demat Account.
What is a Demat Account?
After you’ve purchased something, you’ll need to store it somewhere. In the case of stock purchases, this type of storage is referred to as a Demat Account.
All of the equities you purchase will be kept in a Demat Account. It’s the same as keeping your belongings in a bank locker.
In a Demat Account, on the other hand, you keep all of your stocks in electronic form.
Parameter of Comparison
| Parameter of Comparison | Trading account | Demat account |
|---|---|---|
| Nature of transaction | Dealing in capital transactions | Dealing in shares |
| Period | The trading account is calculated over a time period that is not defined by a certain date or year. It can be measured for 1 month or 6 months. | The financial year, which runs from April 1st to March 31st, is used to calculate the value of a Demat account. |
| Functionality | The Trading account’s main purpose is to allow the Trader to buy and sell securities. It is the transaction’s flow. | The primary goal of a Demat account is to store investments in an electronic format. It’s all about the stock. |
| Impact of transaction | When you purchase shares money get debited from your Trading Account | Shares get credited to your Demat account |
| Selling bonds | You do not need any Trading account for selling Bonds | You need a Demat account for selling Bonds |
| Investing in IPOs | A trading account is not required to simply invest in IPOs. | To invest in IPOs, you must have a Demat account. However, you’ll need both a Demat and a Trading account to sell shares. |
| How does it help? | Trading account facilitates purchasing and selling of stocks | The Demat account aids in retaining stocks |
| Deals | If you want to do is trade options and derivatives, a trading account will suffice. | If you want to do is hold shares, a Demat account will suffice. |
The main differences between a trading account and a depository account
Charges – Both accounts are subject to different types of fees. A trader must pay a one-time fee when opening a trading account, and there are further fees such as GST, Turnover tax, Stamp duty, Exchange costs, and so on. Annual Maintenance Fees, Transaction Fees for purchasing or sharing shares, and Custodian Fees are all included in the Demat account.
Suitability – A trading account is appropriate for persons who buy and sell stocks frequently. Those who want to hold equities for a longer period of time should use a Demat account.
Regulatory approval – Regulatory organizations such as the NSDL and SEBI do not require clearance for the Trading account. However, it is required for the Demat account.
Nature of transactions – You mostly deal in capital transactions in the Trading account, while you trade in shares and stocks in the Demat account.
Account name – A Demat account is also known as an Ownership account because it holds shares that you have purchased. A trading account is also known as a transaction account since it allows you, the trader, to complete transactions such as buying and selling stocks.
Conclusion
Choose a brokerage with a broad reach and devoted customer care to assist you with your needs at any time before opening a Demat account and trading account.
Furthermore, having critical financial support in the form of award-winning research and analysis can help you make the best investing and trading decisions possible.
FAQ
Is it possible to open a Demat Account without first opening a Trading Account?
There is no legal requirement that you open both a Demat and a Trading account. You can open a Demat account without first opening a trading account.
A Demat Account, for example, would suffice if you had applied for an Initial Public Offering (IPO) and only wanted to keep the shares.
However, if you wish to sell these shares on the stock market, you’ll need to open a trading account.
Is it possible to open a Trading Account without a Demat Account?
This is also a possibility. A Demat Account is not required if you merely want to trade futures, options, and currency derivatives. Because all of these trade forms are paid in cash, this is the case.
However, you are required by the Securities and Exchange Board of India (SEBI) to have a Demat Account in order to trade in all types of equities, including equities intraday trading.
Is it legal to run a Demat and trading account from a computer?
It is acceptable to operate a Demat and trading account online.
Is it possible for me to only have a trading account or a Demat account in India, or both?
In order to conduct share trading activities, you must first open a trading account.
If you just wish to hold shares, whether transferred or innate, a Demat account is ideal. In the end, it’s a good idea to keep a Demat and trading account open.
Amit Gupta is the creator of FreeDematAccount.in, a website that specializes in Demat accounts and provides assistance to all its users in navigating through complicated decisions. After completing his high school certification, Amit spent half a decade learning about Demat accounts from brokerages. Before forming FreeDematAccount.in, Amit worked for a Demat account brokerage.