Difference Between Demat Account and Trading Account

Posted by johnnpaul on August 2nd, 2021

What is a Demat and Trading Account?
The full form of Demat is Dematerialized Account. This account allows you to store financial products like Shares, Debentures, Bonds, ETFs bought in the stock market electronically. Simply put, a Demat Account acts like a Bank Locker that stores your shares safely.

On the other hand, a Trading Account helps you buy and sell Shares, ETFs, and Other Financial Instruments listed on the stock market. When you open a trading account with a broker, you will be provided a trading software using which you can place buy and sell orders. Or you can also place orders via a call with the broker.

How are Trading and Demat accounts interdependent on one another?
Let’s understand this with an example:

Assume on a fine Monday, you decide to buy 100 shares of SBI Bank
To buy these shares you need a trading account using which you will place the buy order.
After placing the order, if you want to hold the shares for more than a day, you need a Demat account to store those shares.
So that’s how trading and demat accounts are interconnected with each other Now you might ask, is it compulsory to have both demat and trading accounts? Well, the answer is No.Why? Find out below!

Trading without Demat Account
As you have already learned, a Demat account is needed only if you want to hold the shares. But if you are trading in Equity and Currency Future and Options you do not necessarily need a demat account. Equity and Currency futures and options contracts expire weekly or monthly and are completely cash-settled not resulting in delivery.

You might be wondering why intraday trading in equities is not possible without a demat account, although the shares are bought and sold on the same day and do not result in delivery.

Well, that’s because the SEBI Regulations restrict you from doing so. Hence, you compulsorily need to open a Demat account if you are doing intraday trading in equities.Also having a trading account only can help you avoid various charges like Annual Maintenance etc.

Demat vs Trading Account
The following are the difference between Demat Account and Trading Account

The demat account helps you store financial instruments like Shares, ETFs, Mutual Funds, etc. while a trading account helps you buy them.
Annual maintenance charges are applicable for demat account whereas such charges are not applicable for a trading account.
While a Demat account acts like a safe locker that helps you store shares safely, a trading account acts like an e-commerce platform where you can simply log in and start buying financial instruments