Difference Between Demat Account and Trading Account

Overview

A Demat account serves as a facility where stocks you buy get safely deposited, and the stocks you sell are channeled adequately to the buyer. Please remember that the Demat account is used only to store stocks, not for any transactions (buying or selling).

To know about a Demat vs. trading account, you must understand the function of these accounts. Having a Demat account helps you store all kinds of financial instruments, such as bonds, mutual funds, exchange-traded funds, etc. Therefore, if you are in a long stock trading / investing race, you must consider opening a Demat account.

What is a Trading Account?

A trading account is a medium to buy and sell shares in the stock market. When a company lists its share in the market, you can easily buy or sell the shares only after a trading account. With an online trading account, you don't need to rush to a broker for making any trade. It's become a completely smooth and easy experience to trade online.

Each time you wish to transact any shares or securities, it will be through your trading account, and the shares or securities you buy will be stored in your Demat account. And if you wish to sell these financial assets, they will be debited from your Demat account, and the money will get transferred to your savings bank account. Your trading account saves all of your transaction records and gives you a precise detail of trade.

What is the Difference Between a Demat Account and a Trading Account?

The significant difference between a Demat account and a trading account is that a trading account helps to buy and sell shares in the stock market. The Demat account holds the shares and securities in the electronic format, which is easy to access through the internet and the stockbroker app.

The Demat vs. trading account difference is detailed for people who want detailed information on the difference between a Demat account and a trading account. 

Demat vs. Trading Account Charges

There are different charges associated with a Demat account and trading accounts. Standard charges are AMC, transaction cost, and opening charges. The Demat account also has custodian charges, which are the fees charged by the brokerage firm to keep your financial securities.

Many Dps have waived off the Demat account opening charge and given a good discount on the AMC of the Demat account. Earlier, the price for opening a Demat account was Rs.  700/- to Rs. 900/-. You also get a three-in-one account with a  savings bank account, a Demat account, and a trading account. Such accounts make your life easier by trading and utilizing your funds. 

There is also a custodian fee as a one-time or monthly charge for maintaining your Demat account.  A custodian fee depends upon the number of securities held in your Demat account. Charges range between 0.5 to 1 Indian Rupees for each ISIN, which means International Securities Identification Number.  But most of the time, the broker does not charge a custodian charge because this charge is already paid as a one-time payment. Previously, the DP used to charge for credits and debits to their Demat account. But for now, the DP charges only on the debits to your Demat account. 

Now let's talk about the trading account charges, As the function of the trading account is to buy and sell securities safely. The Transaction charge of a securities or trade was low as Rs.20/- or 0.02% for each security. These numbers depend upon the size of your trade. And for the F&O trade, the charge varies from 0.0035 to 0.015% per order. There are also SEBI fees included in each trade you perform in the stock market. These SEBI fees are 00.00010% of your trade cost. In addition, many brokers provide a per month or annual package, which further cuts down separate charges, making it convenient for daily traders or full-time traders.

Demat vs. Trading Account Opening

Opening a Demat account is easy and doesn’t require much paperwork. All you need is a reputable financial services firm.

Here is the way to open a Demat account:-

• Fill out the account opening form.
• Submit the required documents, i.e., proof of identity and address.
• Complete the in-person verification
• Receive an account number/ ID.

You can also opt for an online process to add basic details with scanned copies of documents such as (Aadhaar, PAN, Canceled Cheque, and your latest bank statement) for opening a Demat account.

To Open a Trading Account

With the help of the internet, opening an online trading account is simple.

• Select a broker or a firm with reasonable brokerage rates and services.
• Fill in the account opening form and complete the KYC details.
• Address proof and ID proof must be attached.
• Wait for your application verification process.
• Get the details of your trading account.
• Happy trading.

Although opening a trading account doesn't cost you anything, it charges brokerage fees on every transaction. In contrast, in a Demat account, there are Annual Maintenance Fees or charges for your Demat account. Further, a percentage is deducted from your Demat account when you sell a share.

Trading and Demat accounts are a requirement for investing in the stock market. Before you start trading, you must get registered with the stock exchange. At the same time, the stockbroker acts as a registered member of the stock exchanges and can trade on your behalf.  By opening an account with a DP, you cannot just trade in securities. You can also professionally manage each of your investments. The stockbroker provides a platform that is well built and enhances the user experience. You get an app, a web platform for making your investment online in the money market. Using these applications for trading is simple, and anyone who knows the stock market and the desire to trade can learn the ins and outs of the trading application in a single day.

Using a trading account, you can quickly buy or sell orders online through a trading platform or phone provided by your stockbroker.

More About Demat and Trading Account

With a Demat account, investors can also apply for initial public offerings of companies and receive corporate benefits like dividends in your Demat account. A Demat and trading account are the essential factors to invest, trade, and make money in the stock market.  There are many features of having both a Demat and a trading account. For example, you can transfer shares and maintain your share for a long time without any trouble or securing method.

The thing to know is that The Securities and Exchange Board of India SEBI is the Securities market regulator that oversees any fraudulent transactions and any activities made by companies, investors, and brokers. SEBI has laid out a few rules and regulations for a company to list its IPO on exchanges which companies have to comply with before being eligible for listing. 

Demat Vs. Trading Account Functionality

• With a trading account, you can transact any time, and with just a click, you can own or sell your financial holdings.
• A trading account can transact any securities like commodities, equities, etc.
• Your trading account is a bridge that connects your Demat account and your bank account.
• There is no limitation on stock size or the purchase of a stock lot. It goes for selling stock also with your trading account.
• A Demat account can store your securities electronically—no worries about losing or misplacing physical certificates, theft, or any fraud. Due to authentication, fake signatures on physical certificates have been eradicated.
• Demat account eliminates paperwork costs and stamps duty charges on the transfer of shares, which happens in the case of physical certificates. Investors can trade for any volume of shares.
• A Demat account doesn’t have minimum balance requirements or needs a minimum number of trades. Investors can also freeze the Demat account for specific periods to limit the credit or debit flow of the account.
• A  trading account lets you trade in any quantity you want. It can help you to transfer securities without any security concerns. Digital trading provides secure encryption for transacting securities in the share market.