Difference Between Demat and Trading Account

Stock market investments offer a great way to grow your wealth over time. But while these investments can be rewarding, they also come with their fair share of risks, especially if you’re new to the world of trading and investments. That’s why building a solid foundation and understanding the basics is key to a successful start.

One of the first steps to entering the stock market is setting up two essential accounts: a demat account and a trading account. Although many new investors and traders use these terms interchangeably, they’re vastly different.

In this handy guide, we’ll not only explain what is the difference between demat and trading accounts but also explore their functionality, account opening process, fees and charges, and more.

What is a Demat Account and Trading Account?

A Dematerialised or Demat account allows you to hold your securities in an electronic form. These include stocks, mutual funds, bonds, or other financial assets. A trading account is a dedicated account that allows you to execute buy and sell transactions in the share market.

Think of a demat account as a basic bank account. Just like you deposit money in a bank account, a demat account stores your financial securities. In fact, you don’t need to have any existing securities to open a demat account.

However, you must have an existing demat account to open a trading account. You don’t need a demat account if you only wish to trade in futures, options, and currency derivatives.

Functionality of a Demat vs Trading Account

Before digitisation, investing in the stock market was a bit complicated. Investors had to be physically present on the trading floor to place buy or sell orders. Once the orders were executed, they were issued physical share certificates, which had to be stored safely.

Today, the entire process, from placing orders to storing securities, can be managed online, thanks to demat and trading accounts. You can simply use your trading account to place orders and store every security you hold in the demat account without even stepping out of your home.

Difference Between Demat Account and Trading Account

While both demat and trading accounts are crucial for stock market investing, they serve very different purposes. Here’s a detailed comparison of a trading account vs demat account for a better understanding:

Demat and Trading Account Opening Process

Ready to start your stock market investment journey? The first thing you need to do is open a demat and trading account. With share.market, you can easily open demat and trading accounts online from the comfort of your home. All you need to do is follow these steps:

• Enter your mobile number and verify it through the OTP.
• Enter your email ID and email verification code.
• Enter your PAN, and proceed to DigiLocker.
• Enter your Aadhaar number, OTP, and DigiLocker Security PIN.
• Allow access to the selected documents in your DigiLocker.
• Enter the KYC details and link your bank account.
• Submit your selfie and signature, and proceed to e-sign the form.
• Enter your Aadhaar and OTP.

That’s it! Your demat and trading accounts will be activated in 3 working days.

Fees and Charges for Opening a Demat and Trading Account

• Account Opening Charges: One-time fees charged by brokers to open a demat and trading account. For example, platforms like share.market allow investors and traders to open these accounts at zero account opening fees.
• Dematerialisation or Rematerialisation Charges: For converting physical shares to electronic format or vice versa.
• Brokerage Fees: Charged for executing buy or sell transactions through your trading account.
• Annual Maintenance Charges (AMC): Annual fee for maintaining your demat account, covering storage and operational services.
• Off-Market Transfer Charges: Charged for transferring securities between two demat accounts without using the stock exchange platform.
• Custodian Fees: Charged monthly depending on the number of shares you hold in your demat account.

Can You Open a Demat Account Without Having a Trading Account or Vice Versa?

Yes, you can easily open a demat account without a trading account. However, a demat account will not be functional without a trading account, as you can only store securities once you buy them.
On the other hand, you cannot open a trading account without a demat account if you wish to invest in equities. But if you only want to trade in futures and options, you don’t need a demat account.

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