Know Working Difference Of Trading Account And Demat Account


Demat Account and trading account are often used interchangeably. The two, however, are quite different. In order to fully understand them, it is important to understand the difference between trading account and Demat account. 

A trading account is what an investor requires to do the market transaction in stocks or securities. What this implies is that in order to buy or sell shares in the share market, a trading account is indispensable. 

Demat Account, on the other hand, stores an investor’s shares, bonds, ETFs etc in an electronic form. With a Demat Account, you do not have to keep shares in the physical form. The Demat Account uses a technology called dematerialization which converts physical stocks into the digital format. 

Now that the basic definitions are laid out, it is time for demat vs trading account

Difference Between Trading Account And Demat Account

A Trading Account and Demat Account differ in several ways from each other. They are as follows: 

Functional Difference 

Trading account is used for trading in the stock market with the shares stored in your Demat Account. Whereas the function of Demat Account is to keep your stocks safe. Both accounts can be used online. You do not have to go to the stock market to trade in shares, the trading account on your phone can do it for you. The same can be said about the Demat Account: it takes away the need to store stocks in their physical form. 

Nature Of Trading And Demat Account

A major difference between trading account and Demat Account is that in the trading account you can see the transactions you did in the stock market whereas the Demat Account will show the securities you are holding for the time being. 

Difference Of Roles

Trading account is directly linked with your bank account. This enables the money to be transferred to your trading account for the purchase of new shares in the market as well as to receive the money for the shares sold. 

The Demat Account can only receive the purchased shares to store them. It cannot be used to trade in the stock market. If you want to sell shares, you will have to take it from your Demat Account and use the trading account to sell it. 

Time Measurement Difference

The trading account shows the flow statement of your transactions. Hence, it is measured over a period of time. The Demat Account, on the contrary, gets measured at a specific point of time, usually the end of the financial year. 

Thus the working difference between trading account and Demat account is quite significant.

Charges Involved

Both trading and Demat Account involve certain charges. In the case of the trading account, there is no such charge required except brokerage charges, GST, stamp duty etc which are generally charged at the beginning.

The Demat Account also does not charge account opening fees. Apart from that, some DPs even offer waivers on the Annual Maintenance Charge (AMC) for the first year. The other charges involved in the Demat Account are as follows:

  • Dematerialization and rematerialization charges
  • Mutual Funds conversion charges
  • Postal Charges
  • Destatementization charges

A broker or DP who charges less should be preferred over others.

Account Opening Process Of Trading and Demat Account

The difference between trading account and Demat Account is not so much when it comes to opening both accounts. 

Trading Account

To open a trading account, follow the given steps:

  • Choose a broker of your choice and ask him to open a trading account in your name. 
  • You will be required to fill the application form.     
  • Documents relating to your identity proof, address proof and bank account will need to be submitted.
  • Once the verification process of your documents is completed, your request for a trading account will be approved. 

Demat Account 

As the broker was required in the trading account, a Depository Participant or DP is needed in the case of Demat Account.

  • Choose a DP with whom you wish to open your Demat Account. The DP will be representing the depository in which your Demat Account will be opened.
  • Provide relevant documents concerning your identification and address proof. 
  • There will be a brief verification of all the details you have provided. 
  • Once the verification is done you will be asked to sign an agreement. This agreement will mention all the rules and regulations you will have to follow regarding your Demat Account. Read the agreement carefully before signing it in order to avoid any misconception.
  • You will be provided with a Demat Account number which is also called Beneficial Owner Identification Number or BO-ID.

No matter what the difference between trading account and Demat Account is, you will need both of them for the purpose of investment. Demat Account alone cannot help you in doing transactions on the share market whereas for a trading account it is also mandatory to have a Demat Account. Not unless you want to trade where cash is involved but this will exclude equities. Hence, both the trading and Demat account are needed to make the best of each other.