Difference Between Demat and Trading Account

Trading and Demat Account are standard terms in the stock market and investing. Each of these terms is often used parallelly with the other. Here we have noted their respective meaning, importance, and majorly how they differ, i.e. the difference Between Demat and Trading Account.

Demat Account Meaning

Dematerialized accounts are also known as Demat accounts for short. Holding a Demat Account, in other terms, is the process of converting or dematerializing physical shares into an electronic format.

The user will be provided with a number while opening the Demat Account. The number will assist the user in dealing with shares electronically.

A Demat Account is similar to a bank account in terms of depositing and withdrawing funds.

Importance of a Demat Account

  • Users can hold a wide range of financial products in the Demat Account, including equities shares, mutual funds, government securities, and exchange-traded funds.

  • It allows users to perform various tasks, such as trading and investing, etc.

Trading Account

A trading account is meant to assist in the operations of buying and selling stocks in the stock market. Users require a Trading Account once the Demat Account has been activated, to buy and sell securities.

A unique trading number will be assigned to the Trading Account holder, which will be used to trade stocks.

Importance of a Trading Account

  • Trading Accounts are used to place orders, and the transaction will be completed on the appropriate stock exchange.

  • The shares that have been bought will be transferred to Demat Accounts, and the funds will be deducted from the bank account.

  • It is interlinked with the Demat Account and Bank Account of the holder.

  • With an online trading account, users can have access to numerous stock exchanges, including the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), the National Commodity and Derivatives Exchange (NCDEX), and the Multi Commodity Exchange (MCX).

Trading Account vs Demat Account

The major difference between Demat and Trading account are listed in the table below-

Particulars

Demat Account

Trading Account

Function

A Demat account's primary purpose is to store securities such as shares in an electronic format.

The purpose of a trading account is to place orders and sell securities and stocks in the stock exchange.

Nature

A Demat account works in the same way as a savings account. Demat accounts allow investors to keep financial instruments in a dematerialized or electronic form.

A trading account, on the other hand, works like a regular bank account, where the account holder uses it to make purchase and sale transactions.

Objective

A Demat account's primary function is to safeguard the safety of an investor's shares.

It allows investors to store their shares electronically rather than physically. It keeps track of the holder’s current assets, such as stocks or shares.

The primary objective of the trading account is to buy and sell stocks.

It gives users access to the stock market and allows them to trade.

Operating Module

As it holds shares and other securities, a Demat account is a flow statement that shows a user's trading transactions and is always measured over time. 

A trading account is a flow statement that records and measures a user's trading transactions over time.

How to Open a Trading Account?

Step 1: Find a reliable broker or firm.

Step 2: Initiate opening a trading account with the services of the brokerage firm.

Step 3: Complete the account registration form. Submit relevant documents, including KYC information, address, and identification.

Step 4: The application will be verified by the authorities, which will take some time.

Step 5: The trading account information will be sent to users.

How to Open a Demat Account Before a Trading Account?

There is no legal requirement to open both a Demat and a Trading account. Users can open a Demat account without first opening a trading account. One can open a demat account online or even by the offline process. 

Here is the list of documents for opening a Demat account:

  • PAN Card
  • Resident proof
  • ID proof
  • Passport size photos

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How to Open a Trading Account Without a Demat Account?

A Demat Account is not required if users merely want to trade futures, options, and currency derivatives. All of the trade forms are paid in cash.

SEBI has made it mandatory for investors and traders to have a Demat Account to trade in all types of equities, including equities intraday trading.

Fees and Charges of Trading Account & Demat Account

You should keep in mind that you can have many Demat and Trading accounts with a single PAN.

All you have to do is pay these necessary fees and charges of Demat Account for availing the services-

  • Demat and Trading Account Opening Charges

It is the fee required for opening your demat and trading account. You can also open your Groww demat account for free. 

  • Demat/Remat Charges

It is the charges levied on converting a physical form of share to digital mode or vice-versa.

  • Demat Annual Maintenance Charges (Demat AMC)

Opening a Demat Account requires Annual Maintenance Charges, which vary depending on the service provider. It is the cost of maintaining your demat account.

  • Brokerage Charges

These are the charges or commissions levied by the stockbrokers for the services offered by them.

  • Off-market Transfer

These are the charges levied on transfer of shares from one demat account to another. 

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