Difference Between Demat Account And Trading Account


A Demat account and a trading account are two of the most crucial criteria for people who wish to trade in the stock market.

A trading account is an account that allows you to conduct transactions, whereas a Demat account is intended to keep shares or other types of assets in a dematerialized form.

Demat Account And Trading Account

Despite the importance of these two accounts, many individuals need clarification about their functions.

To make wise investment choices, it is crucial to comprehend how different accounts differ.

With a 2-in-1 account, investors can easily trade and store their assets in one location, which is convenient and efficient.

Moreover, it does away with the necessity for risky physical share certificates.

What Is A Demat Account?

Simply put, a Demat account enables you to store your shares digitally. The physical shares are dematerialized by being converted to electronic form through a Demat account.

You will receive a Demat account number when you create a Demat account so that you may settle trades online.

A Demat account functions quite similarly to a bank account in that you may keep your money there and make deposits and withdrawals as needed.

The securities are kept, debited, and credited proportionately in your Demat account.

To create a Demat account, you are not required to have any shares; your account balance maybe $0.

What Is A Trading Account?

Aading account is necessary to trade stocks, enabling investors to make well-informed investment choices.

Various investment alternatives, such as stocks, bonds, and mutual funds, are available.

Investors may start trading and utilizing the chances there in the stock market after everything is set up.

Additionally, you can also open trading account online to make informed investment decisions and use automated trade bots.

What Are The Differences Between Demat And Trading Accounts?

Given below are the major differences between Demat and trading accounts—

1. Functional Difference

A Demat account is a financial instrument that keeps financial assets and performs the re-materialization process.

It eliminates paperwork and facilitates the transfer of securities without needing actual certificates. 

Moreover, it enables investors to conveniently manage their portfolios without worrying about paperwork or the possibility of misplacing certificates.

A Demat account is used to retain assets in electronic form, while a trading account is utilized to execute deals.

A trading account may or may not be created at the same bank where a Demat account can be opened if the bank has a specialized Demat department.

Investors may easily access and benefit from the simplicity of opening trading and Demat accounts at reputable brokerages.

Also, keeping a Demat account lowers the possibility of physical stock certificates being stolen or misplaced and speeds up the settlement of deals.

2. Difference In Nature

On exchanges, securities are kept in Dematerialized Accounts (Demats) accounts.

It serves as a bridge between the Demat account and the bank account. It functions similarly to a savings account or storage facility for any "saved" or stored securities.

The trading account is used for transactions that traders and investors do with their securities, such as buying and selling shares.

A trading account is valuable with a Demat account, and a trading account is meaningful if you are trading in assets that need to be held or stored.

Active traders and investors require both accounts since they operate together to ensure the seamless purchase and sale of assets.

3. Difference In Their Roles

Demat and Trading Accounts have distinct functions; whereas a Trading Account enables customers to purchase and sell assets on the stock market, a Demat Account stores securities in digital form.

An initial public offering, or IPO, occurs when a firm first makes its shares available for purchase by the general public.

By opening a trading account, investors can participate in IPOs and buy business shares before the stock becomes publicly traded.

Investors should thoroughly investigate the company's financial soundness, competitive advantages, and growth prospects before investing to maximize the possible profits from IPOs. 

To reduce risks and increase profits, monitoring market developments and modifying investing plans is crucial.

Is It Important To Have Both Demat And Trading Accounts?

In order to manage their assets, investors need to have both Demat and trading accounts.

This is because a Demat account is a safekeeping account for the assets customers acquire. Still, a trading account enables individuals to buy and sell securities on the stock market.

Also, to trade on some brokers' platforms, you may need a Demat and a trading account.

Having two accounts also enables smooth and effective transactions, making taking advantage of market possibilities simpler.

Nevertheless, investing with merely an online Demat account is restricted since it can only be used to buy mutual funds and Initial Public Offerings (IPOs).

A trading account is also one that makes it possible to buy and sell equities on the secondary market (i.e., the stock exchange).

You can be left helpless and unable to sell your investments when you want to as a result. It is thus recommended to open both Demat accounts simultaneously.

Charges To Open A Demat And Trading Account

The opening fees for Demat & Trading accounts differ from broker to broker. Brokers provide free accounts as well as yearly maintenance fees.

The fees assessed by stockbrokers on purchase and sell transactions are known as brokerage costs. 

De- and re-materialization Charges are the costs associated with changing paper share certificates into electronic form and vice versa.

Using the Off-Market Transfer tool, shares may be moved between Demat accounts without going via a stock exchange.

The quantity of shares kept in the Demat account determines how many monthly custodian fees are assessed.

Since most corporations already pay the DPs this one-time cost, most DPs do not impose custodian fees.

What Do You Need To Open An Account?

One requires a valid form of identification and proof of address to open a Demat account.

The client ID and password are given to the account holder, who then uses them to access the trading portal. In addition to having an online trading account, traders can purchase or sell shares using their Demat account.

Demat accounts and trading accounts are typically established concurrently to streamline the process.

When stocks are purchased, the trading account is debited for the amount, and when the stocks are sold, the trading account is credited for the same amount of money.

The features of a trading account, a Demat account, and a bank account are all combined into one account that banks have begun to provide to their consumers. It's crucial to buy stocks through the top brokerage house.