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Significant Difference Between Demat & Trading Account-2020

Difference Between Demat and Trading Account

diffrence between demat and trading account

If you invest in the stock market or want to invest in the stock market. 

To invest in the stock market you require a Demat and Trading Account essentially well as we need saving accounts to invest our money.

You obligation have Demat and Trading Account to exchange and invest in the share in the stock market.

In this particular guide, we will be talking about what exactly is a trading account or Demat account and why we use these accounts to invest in the stock market, the difference between both of these accounts we also look some parameters while we open our accounts their advantages, can you use only a trading account can you open only a Demat account and lots of more things that will help you.

My Name is sarvesh and I usually write an article on my blog Taxinvestcare about personal finance.

Why we needed these accounts.

 There are two types of trading available in the stock market.

         Physical Trading

    Online Trading

Physical Trading

In 1995 when we have not an online procedure, then we are done trading by Physical Trading.

People are do trading on paper, like signature physically visit the stock market and submit the application and get a hard copy of the share certificate.

This complete demands time during 4-8 weeks.

To do this whole process he or his broker required to be physically present at the stock exchange.

If you want to purchase shares you must go each exchange with the cash, and if you wanted to sell shares.

You had to go to the share exchanges like BSE (Bombay StockExchange) and NSE (National Stock Exchange) with your physical share certificates.

When the quoted prices of the buyer and seller matched?

You would pay the seller in cash and the seller would give you the physical share certifications it was quite a cumbersome process.

That is a big reason that stock is shifted from physical trading to online trading.

To prevent this problem SEBI (Security and Exchange Board of India) introduced the Demat account to make trading and sharing easily.

The Demat account was first introduced in 1986.

Online Trading

In this digital age if you want to buy or sell share you can do so right through your mobile or laptop.

The Physical certificates you used to take with you are no longer needed all those shares are now stored in your Demat account in Digital format.

Now let’s take a definition both of these accounts.

Now before understand to Demat and trading account lets us discuss a 3-in-1 account and 2-in-1 account.

3-in-1 Account

The 3-in-1 account is normally offered by bank and bank open you’re following accounts.

1. Trading Account
2.  Demat Account
3.  Bank Account

You want to invest in the stock market through the bank so the bank will open your 3-in-1 account.

These accounts are offered by the bank and these accounts will be interlinked together.

2-in- Account

2-in-1 Account is normally offered by broker companies who have no bank and they open you're these two accounts.

1.  Trading accounts

2.  Demat accounts

You can easily interlink them with trading and Demat accounts.

Definitions of Demat account and Trading Account

Trading Account

If you want to transact of any kind in any security, you need an account called trading account.

So if you want to buy or sell the shares.

 You can do so through an account known as a trading account.

Like if you want to place an order of 500 shares you do it through your trading account.

But to deposit cash in the trading account you will need your bank account.

So your bank should be linked with your trading account.

Let’s say you have 1 lakh in your bank account you want to do a transaction of 50,000.

So first you will need to transfer Rs.50, 000 from your bank account to your trading account.

Then you can buy any share with that 50,000.

 But you can only transact in shares through the trading account.

But if you want to receive those shares you need a Demat account.

Demat Account

A Demat account is like your bank account, for example, you store cash in your bank account a Demat account store your shares and each share had a unique ISIN (International Securities Identification Number) code.

Which you can use to verify the share and its number.

Demat account is the share form of the dematerialization account.

Dematerialization means to store your physical share certificates in the electronic form.

In India two organizations maintain Demat accounts.

1.  NSDL (National securities Depositary Limited)
2.  CSDL (Central securities Depositary Limited)

These are called Depositary.

How the transaction works in Demat and Trading Account

Let’s understand it with a live example.

Let’s say you have 1 Lakh in your Bank account and you want to buy 10 shares of a company on pricing Rs.10, 000.

Then you’ll have to transfer rs.10, 000 from your bank account to your trading account.

Now you can place the order for those 10 shares.

But at the same time, some other a person has to place a sell order of those 10 shares.

When the buy order and sell order match the order gets executed.

Then Rs.10, 000 is transferred from your trading account to the seller trading account the shares and the shares are transferred from seller account to your Demat account.

The execution of this whole share of the cycle takes T+2 days

T+2 mean Trading day + 2 Days.

Like if you transacted on Monday.

 You will have the shares delivered to you on Wednesday evening the share will be debited from the seller Demat account on Wednesday morning.

Can we open only Trading Account or a Demat Account?

Many people have the question of whether they can open only the trading account or the Demat account.

Yes, you can that but it will not beneficiary too much.

If you are doing intraday trading then you can open an only trading account but if you want to store your share minimum for 1 day you need a Demat account.

Without a Demat account, you can sell your share certificate in cash.

But in another case, you want to open only Demat account, not the trading accounts how will you trade in share market and how can you exchange the stock?

If you are buying a share in an IPO allotment and want to sell them as well, you can’t sell without a trading account.

As per SEBI (Security and Exchange Board of India) guidelines if you invest or trade-in the equity section.

 It is mandatory to have a Demat account.

Difference between Demat Account and Trading Account

1.  Demat an account is used to hold the share certificates and the Trading account is used for cash.

2.  In Demat the account we can store share and buy or sell share we used Trading account.

3.  You can place your share with a trading account.

4.  Demat account and Trading account both of these are linked with the bank account.

Parameter for choosing the Best Demat and Trading Account

2.User Interface


Safety We Invest in the Stock market or any kind of investment we should be careful about care securities.

But if we invest in the stock market as well as mutual funds so there is very little chance to lose your money you get high safety because all the stock exchanges and AMC (Asset Management Company) are regulated by SEBI.

But during the open Demat and trading account check the security like, Broker security and company in which you open an account.

Let’s Major the security or safety level in terms of Broker.

Bank Brokers (Low Risk)

Full-Service Broker (Moderate Risk)

Discount Broker (High Risk)

You should always choose the reputed brokers you can easily find them on the internet and you can check the review on YouTube.

User Interface

User Interface is one of the important things when you invest in the stock market or open an account because as a beginner there is a lot of things are available on the applications and website which we don’t know and these things are very difficult to use.

So always look at how you can easily operate and trade by their applications and websites.

For Example, ZERODHA which is a discount and it has the best user interface in the industry.


Noe Let’s Discuss some charges when you open a Demat and Trading account.

So there are three brokers as I mentioned above and each of them have different charges.

   1.  Bank Brokers

Bank Brokers charges are very high.
It charges almost 4 To 5%.

    2.  Discount Brokers

Discount Brokers charges are low.

    3.  Full-Service Broker

Full-Service Brokers charges are moderate. Ti charges around 2 to 2.5%. It wills Negotiable based on share Volume.


Most of the Broker is provides you many types of Features like they give you advice and stock tips or them facilities to you trade-in Mobile also provides some analytical tools to analyze the share and provide multiple Investment options.

Documents Require to open a Demat and Trading Account

You need some documents when applying to open these accounts.

Documents are……

Pan Card (Must Require)

Adhar Card or any address proof

Bank Statement for Future and Option

Cancel Cheque if Required

Note: - All process is online.

FAQ’s (Frequently Asked Questions)

    1.  Is Demat account a brokerage account?

A brokerage account provides big platforms.
Demat account is simply made to hold the share certificate that you buy.

   2.  Which is the best Demat account for beginners?

There is many companies provide Demat account opening facility but ZERODHA is One the leading Company as a Beginner you can go with them.

   3.  Can a person have 2 Demat accounts?

If you want to have multiple Demat accounts so you Broker should not be the same you can open multiple Demat accounts in multiple companies.

This is Guide about Difference between Demat and Trading the account I Hope you have understood almost about the Demat and Trading account. 

If you have any Doubt Feel free to ask in the comment section.

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