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

For traders who seek to invest in the stock market and know about the basics of stock trading, one of the important trading things to know is about the Demat account and the Trading account and their differences. Both of these accounts are important to trade daily.

First of all, you must select a stockbroker to trade in the stock market. This stockbroker should be able to fulfil your trading requirements. Despite that, online trading depends upon your Demat and Trading account. If not planned properly, it can harm your holdings.

As a novice trader, you need to be aware of your trade’s risk and rewards ratio. It’s a systematic investment process and analysis of different financial assets. Partner with a stockbroker who can provide both tools and equipment. To open a Trading or Demat account, you also need to learn the difference between these two accounts.

Demat Account

With the introduction of online trading, it has become essential for traders to have a digital financial certificate. Converting your physical shares into the digital format is mandatory to participate in the stock market. Holding the physical certificates involves risk in investment. You can convert or get electronic financial certificates by opening a Demat account. In a Demat account, you can hold different financial securities such as a commodity, equity, ETFs, mutual funds, etc.

Trading Account

Online trading is a new hype and is considered the fastest way of trading. Once you open a Demat account, you must also have a Trading account. The task of the Trading account is to transfer your securities from your Demat account to the stock exchange or other Demat account. To perform online trading, you need to have a bank account, a Demat account, and a Trading account. The stock market allows you to trade with a secure medium by registering with a trusted stockbroker, such as Share India.

Demat Account vs. Trading Account

There are some differences between the Demat and the Trading account. To highlight this, we can elaborate on both accounts’ functions, natures, roles, and charges.

Functions of the Two Accounts

A Trading account is used for buying and selling securities with the help of the shares debited from your Demat account and sold on the stock exchange.

A Demat account safely keeps all your financial holdings in digital format. It also works in a way where you can access it online from the stockbroker app.

Natures of the Two Accounts

A Trading account functions in a similar way to a bank account. The Trading account sells your shares with the market by withdrawing them from your Demat account and transferring them into the market.

Unlike trading accounts, the task of a Demat account is to track, safely deposit, and show your recent transactions.

Roles of the Two Accounts

The Demat account works as a link between the Trading and the bank accounts. The Trading account is the link between the Demat account and the stock market. The journey from debiting funds to transferring shares all works in the proper synchronisation so that the trader doesn’t get any problems or errors in online trading.

Charges of the Two Accounts

Opening a Demat account has certain charges attached to it. This includes the AMC, transaction charges, taxes, and brokerage. This charge depends from broker to broker. A Trading account also has an opening charge, transaction charge, and maintenance charge. You can also get a clubbed offer for maintenance of the Trading and Demat accounts. You can use multiple Demat and Trading accounts using your PAN details. Still, all you need to know is that opening multiple Demat accounts only supports different brokers, which simply means that you cannot open multiple Demat accounts from a single brokerage.

If you are considering trading stocks, our share brokerage calculator can help you determine how much you will need to pay in brokerage fees.

Approvals Needed to Open Demat Account and Trading Account

To open a Demat or Trading account, you need to approach a SEBI-approved stock broker like Share India. The depository participant (DP) should be registered with the National Securities Depository Limited (NSDL) or the Central Depository Services Limited (CDSL). In the case of a Trading account, you do not need any extra approvals.

The number of transactions you can do in the Demat and trading account is quite high, and there is no restriction on the number of transactions. Each DP has their own brokerage charges. So you need to check all the charges and related documents on their website and application.

Every stockbroker has its features and benefits. To know more about the broker, you can check their customer base and the features which you are looking for. To trade in financial instruments, you need to do in-depth research and plan your financial portfolio. A trader who seeks opportunities can explore a different type of financial asset that is present in the stock market.

Opening a Demat Account and a Trading Account

Nowadays, brokers like Share India provide both Demat account and Trading account openings at no cost. This means you can open a free Demat and Trading account from the Share India website or app. The steps to open a Demat account are as follows:

1. You need to click on the ‘Open Demat Account’ tab on the website or the Share India online trading app.
2. Enter your email ID and mobile number, and enter the OTP received on your mobile number.
3. Upload all the necessary documents such as PAN card, Aadhaar card, bank statement, etc.
4. After uploading, perform eKYC with the help of an e-Aadhaar card.
5. You also need to add nominee details to your Demat account.
6. After successfully submitting your documents, you need to sign the agreement. The DP will provide you with the terms and conditions forms. This form shows the legal rights and other factors related to the stock market.
7. You will get the Demat account number and the BOID in your registered email and mobile number as soon as the above steps are executed properly.

Conclusion

The Demat vs Trading account topic is quite important. As an investor, it’s better to know the application and purpose of each account. For trading equity or doing other transactions, you need to have both accounts. And if you wish to grow your portfolio, you need to improve your knowledge of the stock market.

Share India is a one-stop solution to trade in everything from equities and other forms of financial instruments. To learn and know more about stock trading, visit the Share India website, join the family of the smart trader, and start your investments from day one.

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