Directory Image
This website uses cookies to improve user experience. By using our website you consent to all cookies in accordance with our Privacy Policy.

What is difference between Demat account and trading account?

Author: Maithili Pawar
by Maithili Pawar
Posted: Feb 17, 2020

When it comes to investing or trading in the stock market, there are two types of accounts that a person must open as per existing laws in India; a Demat account and a trading account. Making any purchases or sales in the share market live is not possible without these two accounts.

What is trading account?

Before electronic screen-based trading, trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the purchase consideration. Settlement would happen in person. This system has been replaced with an order matching mechanism completely online.

The trading account is a link between your Demat account and the stock exchange’s order matching system. The day trading account makes it possible to make purchases and sales and places the order with the exchange.

Brokers charge brokerage for transactions executed through the trading account. Securities transaction tax and exchange fees are other costs associated with trading. It is very easy to open a day trading account both online and offline.

What is Demat account?

A Demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account helps investors convert physical investments into their electronic form and this process is called dematerialization.

A Demat account will show the current market value of all investments held in that account as on a date. It also shows whether a share is partly paid up or fully paid up. It shows previous transactions. An investor can hold a zero balance in this account.

A Demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc

Trading account vs Demat account

A Demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of different instruments.

It is possible to open these two accounts with separate companies. In such case, you will need to sign a delivery slip with the name of the share or security, quantity and price to transfer shares from your Demat to your broker’s account.

A Demat can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his Demat account. However, to sell in the stock market live, you need a trading account.

Similarly, a trading account can exist without a Demat account if the trader only wishes to indulge in intraday trades in the share market.

Nowadays many brokers offer a Demat as well as trading account together by waiving off certain fees and providing certain benefits. This can work out to be cost effective for an investor. Some even offer a 3 in 1 account where a bank, Demat account and trading account are combined. However, you need to check the costs before making this decision.

About the Author

Maithili Pawar is a finance professor. She has written on share market basics. Through this article, she has provided detailed information on stock market.

Rate this Article
Author: Maithili Pawar

Maithili Pawar

Member since: Jul 21, 2019
Published articles: 16

Related Articles