What is the Difference between Demat Account and Trading Account?

The Difference between Demat Account and Trading Account

Those who have been trading in shares remember the days of physical trading before mid-90’s. Later, the stock exchanges started using the electronic system which eliminated the need of going to the counter and placing the order physically.

The availability of the internet connectivity changed the situation further. Now, share trading is a matter of a few clicks. One can do it sitting in front of a computer.

When you deal into shares, two terms are used quite frequently; demat account and trading account. Still, some people think that these are not two separate entities.

The blog explains the difference between a trading account and demat account.

Trading account

It is the online window used for placing orders to purchase or sell shares in the stock market. A stock broker opens a trading account for their customers. It helps in trading seamlessly and quickly.

The process of opening a trading account is quite simple. The broker who opens the trading account is a registered member of the stock exchange.

It has several clients like you. Hence, every client gets a unique identification number. By using the client-id, you can log on to the trading portal.

You can give selling or buying instructions verbally by calling the broker or do it yourself by using the trading account.

Demat Account

A demat account is a short form of dematerialized account. It holds the shares and securities of an institution or individual investor. It holds the information in the electronic form.

When you do trading, which means you sell or buy shares, the transactions happen through the demat account. Like the bank account holds your money, the Demat account holds your shares.

What is the difference between the two?

Many people are unable to make out the difference between a demat account and a trading account. However, it is quite simple.

A trading account is just a virtual trading platform where you can buy or sell shares. The shares are stored in the Demat account which is linked to any of the authorized depositaries.

In India CDSL and NDSL are two depositaries approved by SEBI. Every investor is supposed to be linked with them through a Demat account.

When the delivery trading happens, the Demat account is updated at the end of the trading session. Thus, at any moment, the Demat account reflects the end of the day position of last trading day.

The trading account belongs to the broker who issues it for their client. For every transaction of selling or purchasing shares, the broker charges a certain percentage of transaction value as brokerage.

The brokerage is deducted from the balance amount. If the amount goes in the negative, then the client has to deposit further amount.

Both Demat and trading accounts need supporting documents to verify the validity of the client. PAN card, address proof and identification proof, bank account details and canceled cheque are the required documents.

The list of supporting document may vary on a case to case basis.

Also Read:

How to buy Shares using Demat Account?

How to Open Demat Account in Zerodha Online?