What is the difference between Demat Account and Trading Account?

Recently I came across a new investor who was very much eager to start his stock investment. However, hardly know the difference between Trading Account and Demat Account. This is not the case with any new investors, but many of us do not understand the meaning and difference between Demat and Trading Accounts. Hence, in this post I tried to explain you about the meaning and the difference of Demat account and Trading account.

Before proceeding further, please have a look at a below image. It explains clearly how and in what way one can invest in the stock market and what are the importance of Trading and Demat Accounts.

What is difference between Demat and Trading Account

You notice that Trading Account acts as a center point in stock buying or selling activity. Whereas, Demat Account is a facility under Trading System.

What is Trading Account?

When someone tries to buy stocks, then the first requirement for him is to have a trading account. This acts like buying and selling platform. This trading account connects to a stock market, from where you buy/sell stocks. You need funds to buy stocks. Hence, you must connect your trading account with your bank account. First, you have to transfer the fund from Bank Account to Trading Account. Once the fund available in Trading Account, then one can buy stocks from the stock market. Therefore, trading account, as the name suggests, is a trading platform where you buy and sell stocks to the market.

Hence, Trading Account is an intermediary of the Stock Market, Bank Account, and Demat Account.

What is Demat Account? 

When you buy something, then you must place those materials in some place. Here in the case of stock buying such storing place is called Demat Account. Whatever stocks you buy will be held in Demat Account. It is exactly like your bank locker, where you keep your valuables. Whereas, in case of Demat Account, you hold your all stocks in electronic format.

According to the Depository Act of 1996, by SEBI (Securities and Exchange Board of India), it is must for equity investors to have a Demat account, which dematerializes or converts your stocks and stores them in electronic format.

This is the reason why broking firms offer you trading account along with demat account.

How the trading takes place?

Once you open the trading account and Demat account, fist you have to transfer the fund from a bank account to the trading account. Whenever you buy the stocks, then the equal amount cash will be deducted from the trading account. In the same way, whenever you sell the stocks, then the equal amount of cash will be deposited to your trading account.

In the same way, whenever you buy the stocks, then such stocks will be deposited into your Demat Account. In addition, whenever you sell the stocks, then such sold stocks will be taken away from your Demat Account.

In simple, Trading Account acts like a connection between Demat Account and Bank Account.

Hence, to integrate all these i.e. Trading Account, Demat Account and Bank Account, Banks started to offer 3-in-1 Account. In such accounts, your banker will provide you all the three benefits. This will be convenient for traders have one point of contact for all the three accounts. However, do remember that, in some cases, banks may put you in pressure to manage the minimum balance in the savings account. In addition, I felt the brokerage structure and cost of account opening and fees will be higher side when compared to other brokers who offer only Trading and Demat Account. However, if you are looking for convenience, then pay for it and open account.

Hope the above explanation cleared your doubts about Trading Account and Demat Account.

73 Comments

  1. Thanku sir for the important knowledge…..keep on giving more information about stock market…..??

    Reply
  2. i have 3-in-1 account with icici direct and sbicap securities. If i open a further trading account in say angel eye or 5paise or Upstox then is is mandatory to open a further demat account at angel eye etc ? Is it possible for mapping of demat account of SCICAP Securities or icici direct where my scrips are lying ?

    Reply
  3. I have a Three in one account ( SB account, Demate account and Trading account) with ICICI bank Nomination is Filled in only SB account . Is nomination necessary in all accounts ?

    Reply
  4. Hi Sir !
    I’m beginner & interested in IPOs . It’s possible with only demat account .?

    Reply
      • But you said “When someone tries to buy stocks, then the first requirement for him is to have a trading account”, then, will demat account be anough?

        Reply
          • But before holding, one buys the stocks from IPO, right? so one also need trading account in case of IPO?

            Reply
              • But you say only Demat account is sufficient? Pls clarify. If I only open Demat account, then how cam I do trading (without trading account)?

                Reply
  5. Ok so to open Trading account you must have demat account along with?

    Reply
    • Deepak-Where you hold when you buy if you only have trading account??

      Reply
  6. Is it necessary to talk to a broker or go to an broker office, whether to open an demat or trading account ? Or can i do it online without having the need to talk our go out ? Am a beginner in all this stock market world and am very much interested in trading but what am having trouble is of the type’s of account, broker, etc. Thank You

    Reply
    • Daven-You can’t open the account online as you need to submit KYC documents also require your signatures.

      Reply
  7. Hi Basavaraj,
    I want to invest in IPO , I have salary account in SBI. Do I need to open trading account or demat account is enough. Also, for selling these stocks is it enough to have demat account?
    Regards
    Suru

    Reply
    • Also I am planning to buy Sovereign Gold Bonds in next tranche, is it better to open demat account and for this trading account is compulsory to sell them or bonds can be rematerialised before selling?

      Reply
      • Suru-Demat account not required to hold Sovereign Gold Bonds.

        Reply
    • Suru-For holding stocks you need demat and for buying and selling stocks, you need trading account. Hence, both are necessary.

      Reply
  8. New to trading. Some basic queries
    1) Is it possible to have Dmat account and trading account with different firms?
    2) How can I withdraw money from trading account ?

    Reply
    • Saurabh-1) YES. 2) It is the process that you have to ask your broker.

      Reply
      • Okay. In case one opts for 2 different firms for demat and trading account (say demat with sbi and trading with zerodha), will he have to bear separate charges for 2 accounts like maintenance, brokerage etc.

        Is it better to have both accounts with same firm?

        Reply
        • Saurabh-Obviously. That is the reason its best to keep both at same platform.

          Reply
          • Thank You BasavaRaj sir

            Reply
  9. You’ve explained really well. Thanks a lot. 🙂

    Reply
  10. Hey,
    Tonagatti, My Question is that If I want to work with Call and Put options in NIFTY ,So it needs which one kind of account Trading Account or Demat Account ?

    Reply
      • Thanks , And you have any blog on Call and put Option, if yes then please send me link.

        Reply
  11. Dear sir,
    I wanna ask that is it neccesory to have a demat account to do trading with an trading a/c. or can i do trading without it
    please suggest me.

    Reply
    • Sagar-For holding stocks (for trading or investing), demat account is necessary.

      Reply
  12. What happened about series sir…..

    Reply
  13. Do you recommend icici direct for trading? What is your opinion?

    Reply
    • Gupta-I not recommend any particular company. It is your wish to choose based on your comfort.

      Reply
  14. Sir I am new for investment in stock market but Sir as I know I need to have Dmate and trading a/c for investment in stock market then what is the better option for me to open Dmate and trading A/c,, Bank or other stock broking co, now I have SBI bank A/c… Please suggest me with proper explanation…

    Reply
  15. I am a new in this market.. I want to invest in commodity market.. What account will I open demat account or treading account? How can I purchase?

    Reply
  16. Does we need to begin new bank account for start trading in share market.is there is any need for going to bank

    Reply
    • Arun-Bank account is necessary. But not the NEW one, you can open demat account with existing account. Also, you no need to visit bank for opening demat account. There are enough other demat account providers.

      Reply
  17. dear sir,

    thank you for the simple and uncomplicated explaination. it has helped in clearing my confusion.
    can u please tell me if a demat account and a mutual fund account is the same thing? if not then what is a mutual fund account?

    Reply
    • Aishwaryaa-No, both are different. Demat account is to hold financial instruments in demat format (non-physical). Mutual Fund account is related to your mutual fund investment.

      Reply
  18. CAN WE HAVE DEMAT AND TRADING ACCOUNT AT DIFFERENT BANK?

    Reply
  19. I want to invest in SIP how can i do this.

    Reply
    • Bhupesh-There are many ways. Few of them are through advisers, online platforms (like fundsindia), directly with mutual fund companies or few online platforms which offer direct plans like MF Utility and FundzIndia.

      Reply
  20. Sir, is it possible to buy n sell share in Demat account in same day.

    Reply
  21. Sir,

    I am an Indian citizen who is currently residing in USA on a work permit. I have some queries and I hope you might be able to answer them for me:
    1- Am I allowed to transfer my US dollar savings to my HDFC savings account in India?
    2 – Am I allowed to invest in mutual funds of India while I reside in USA?
    3 – Am I allowed to invest in the stock market while I reside in USA

    Reply
    • Sri-First understand your residential status. If you are an NRI, then you are not allowed to operate normal savings account.

      Reply
  22. hello sir.. i want to start my investing in stock market . i am new to this stuff. so i guess i have to open a demat and trading account. as of now i am planning only for a short term investment. i already have 2 working accounts in SBI. can u please suggest me a firm to open the trading account and demat account with less maintanance or do i open it in the same bank ???

    Reply
    • Naveen-If your buying is delivery based, then recently ZERODHA started NO CHARGES account. Contac them. It is the cheapest in Indian industry.

      Reply
  23. Basavaraj Tonagatti,
    Thank you for your open post on your blogs.
    Im interested in investing in mutual funds and am newbie in this area. hence, i would like to know what is required for investing in mutual funds. currently i hold valid bank account – salaried account in AXIS bank, is this enough for me to start investing in Mutual funds? or do i have to have DEMAT and TRADING account for Mutual funds investing also.

    Please suggest on this.

    Thanks and Regards,
    Mohammed Jameel

    Reply
    • Jameel-You must need a bank account (which you already have), PAN Card and Address Proof. These many requirements are enough to invest in MF. Demat account is optional to hold the units in demat format, but not necessity. Trading account is not at all required.

      Reply
  24. dear sir,

    I am planning to open a trading account and dmate account. could you suggest which is having less maintenance fee. I prefer to invest for long-term.

    Reply
    • Aditya-If you are long term investor, then I don’t think you have to worry much about cost.

      Reply
  25. sir i have trading account in angel swift . i have the trading id. but i dont know my dmat account. is dmat account no and trading id is same or different. if they are not same then how do i get my dmat account no

    Reply
    • Rajesh-Trading account and demat account are different. You can check the details with your broker for the same.

      Reply
  26. Dear Sir
    I purchased online term insurance plan of maxlife insurance opting for a cover of Rs. 1 crore on 29 march 2015.Now after completing all the formalities I am told by the company that they can offer cover of rs. 50 lakhs only .My annual income is Rs. 5 lakhs approximately.Should I go with their offer or should I look for some other company?

    Reply
    • Prince-Before accepting their offer, check why they offering you just Rs.50 lakh. Then proceed further for buying.

      Reply
  27. dear sir,
    i am confuse between eLIC term and privite insurance ex ICCI HDFC…LIC is costly but can be belive for long term. ICCI and HDFC were less premium but cant belive for long term.. suggest me which one is better LIC or others

    Reply
    • Pranesh-All are good. You can go ahead with the company which you feel affordable and suites to your need.

      Reply
      • Dear sir,
        Fr me affordable is HDFC., offering 40 years covers upto 75 yeras for Rs8000, whereas ICCI have term for only 30 years and upto 65 years at the same price. while LIC is too costly Rs.12100 fo 35 years.
        But i am seeing so many negative reviews from customers who took policy from HDFC…

        suggest pls..

        Reply
        • Pranesh-The only negative I feel about HDFC is that buying without undergoing medical examination. It is dangerous. If you opting for cover of more than Rs.1 Cr and buying this with medical examination, then I don’t have any issues with HDFC.

          Reply
  28. Dear Basu,

    This post really helps beginners like me.

    Things I would like to know more, are, What exactly is a stock exchange? Why does the stock price change every second? etc..
    These may be too simple a topic, but many of us may not know.

    I suggest you to make a series of posts describing the basics of direct equity investing.
    Its should be something like “Direct Investing For Dummies” or “Direct Investing 101”.

    Or if you have already written about these, please point me to those posts.

    Thanks,
    Kirthi

    Reply
      • It will greatly enrich my knowledge if Kirthi query is answered.

        Reply
        • Rajiv-Surely I will come up with posts related to Kirthi’s interest. Thanks once again.

          Reply

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