Open a Trading Account

Register as Guest

Become a Partner

Please fill in your details

Know the difference between Demat Account and Trading Account

If one wishes to invest or trade in the stock market, there are two types of accounts that need to be opened. These accounts are demat and trading account. These two accounts are different in their uses but both are necessary for investing in the stock market.


What is trading account?

In earlier times, trades used to take place between brokers who acted on behalf of their clients. These trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the funds and the transaction would get complete. With the digital revolution and online trading, the open outcry method for transacting has become completely obsolete. With all the stock exchanges going completely online, these manual trades by brokers has been replaced by online trading through the trading account. Read more about online share trading here.

The trading account is an account used to purchase and sell –

1. Equity shares
2. Equity, Debt and Hybrid mutual funds
3. Bonds
4. Government securities
5. Derivatives
6. Commodities
7. Currencies
8. ETFs
9. Other instruments traded on the stock exchange

Using a trading account to buy and sell is extremely simple. Each broker offers their own trading system through their website or mobile application. These trading systems are connected to the stock market’s proprietary online systems. This offers a price matching system. An investor or trader just has to put in his order request and when the system matches the price and quantity for the order, the order gets executed. This order matching system provides seamless execution of transactions without any human intervention.

The trading account is basically a link between your demat account and the exchange’s order matching system. Once the trades get cleared at the exchange, the shares or other instruments are debited and credited from the respective demat accounts.

The trading account makes it extremely simple to buy and sell any investment. Since most of the investments are listed on the exchange, price discovery is easy and transparent. All you need to do is select the instrument you want to purchase and the price, and the exchange’s order matching system will ensure the transaction goes through.

Brokers charge brokerage for transactions executed through the trading account. Along with that, there are exchange fees and securities transaction tax that is levied on each transaction.


What is demat account?

A demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account allows the investor to hold shares and securities in an online form. Physical securities held by a person can be dematerialised into their electronic form and held in the demat account. One of the primary advantage of a demat account is that your shares are safe. Shares in their physical form can get damaged or lost. But shares in your demat account are safe and you don’t need to fear losing them.

A demat account, like any other account, lets you easily scan all the transactions. A demat account will show the current market value of all investments held in that account as on a particular date. It also shows whether a share is partly paid up or fully paid up, thus providing clarity to the investor. However, unlike a bank account, a demat account can have zero shares or securities and still be functional.

A demat account is a very convenient way to handle all investments. Unlike earlier times where all securities were in physical form, a demat account holds everything in electronic form. This makes it very convenient to handle and operate.

A demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc. A bank account is usually linked to a demat account, which makes it easy for dividends and interest to get credited to the investor’s account directly. Read more about a Demat account here.


Trading account vs demat account

The difference between trading account and demat account is simple, a demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of investments.

A trading account inherently has no balance. It draws from the demat account once the purchase or sale transaction has gone through from the exchange’s side. A trading account also cannot exist in isolation. It has to be linked to a demat account from which the required shares or securities can be debited or credited.

A demat account can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his demat account. However, to sell these units, a trading account will be needed.

The difference between demat and trading account is very fine. However, it is essential to know how these two accounts operate and what their nature is. This understanding will help you open these accounts and get started with your investments.


How to open a trading account:

1. Select a broker of your choice like IndiaNivesh Securities Ltd. Bear in mind that each transaction requires a certain brokerage so be sure to research about the different brokerage rates for both delivery based trades and intraday trades.
2. Check the services offered by each broker. Make sure you choose a broker who provides extensive customer support, especially if you are a beginner. A good broker who provides detailed research reports could be the difference between earning profits and earning wealth.
3. Fill in the account opening form and provide the mandatory KYC details. If you have a demat account with the same broker, the KYC details may be exempted, but that depends on the broker. Some of the KYC documents required are:
a. Identity proof (Aadhar Card, Passport, Voter ID, Driving License, PAN card)
b. Address proof (Aadhar Card, Passport, Voter Id, Driving License, Electricity bill, Gas bill, Telephone bill, Rental agreement, Loan agreement)
You will need to submit a proof of income i.e bank statements, income tax returns, Form 16 etc.

4. You will also need to submit passport size photographs.
5. Some brokers request a verification check and witnesses while filling up the account opening form
6. Once the broker processes your application, you will get details about your trading account
7. You also need to link your bank account to your trading account so that funds received from a sale can be credited into the bank account.
8. Once you receive these details, you can start trading.

However, before you execute any trades, you must know where you are investing and what your investment strategy is. Without knowing this, it is very easy to lose money in the stock market, especially while engaging in intraday trades which is susceptible to price fluctuations. Now that you know the difference between these accounts, why not open a demat and trading account with a reputed broker like IndiaNivesh Securities Ltd.



Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.