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.
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.
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Thanku sir for the important knowledge.....keep on giving more information about stock market.....??
Sonali-Sure.
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 ?
Prasanta-Do you need these many accounts?
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 ?
Hardeep-Yes, to ease your dependents life when you are no more.
Hi Sir !
I'm beginner & interested in IPOs . It's possible with only demat account .?
Kamal-Yes, one Demat account is enough.
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?
Mukesh-Demat account is to hold the stocks.
But before holding, one buys the stocks from IPO, right? so one also need trading account in case of IPO?
Mukesh-Trading Account and Demat Account, both are necessary.
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)?
Jitendra-For investing you need both.
Ok so to open Trading account you must have demat account along with?
Deepak-Where you hold when you buy if you only have trading account??
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
Daven-You can't open the account online as you need to submit KYC documents also require your signatures.
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
Suru-For holding stocks you need demat and for buying and selling stocks, you need trading account. Hence, both are necessary.
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?
Suru-Demat account not required to hold Sovereign Gold Bonds.
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 ?
Saurabh-1) YES. 2) It is the process that you have to ask your broker.
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?
Saurabh-Obviously. That is the reason its best to keep both at same platform.
Thank You BasavaRaj sir
You've explained really well. Thanks a lot. :)
Prince-Pleasure :)
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 ?
Veera-Without demat trading account will not be opened.
Thanks , And you have any blog on Call and put Option, if yes then please send me link.
Veera-No, I have not written anything on that.