What is the difference between a demat account and a trading account?

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Stock Market | March 30

What is the difference between a demat account and a trading account?

Demat Account

It is the short form of depository beneficiary account, it is used to hold the securities in the dematerialized form.

This kind of account does nothing but acts as a repository where all the entities bought from Stock Market India are kept in the electronic format.

Securities like bonds, debentures, equity shares, preference shares or any securities having ISIN can be held in a Demat Account. Securities having ISIN can be held in Demat Account even when they are not listed on any Stock Exchange. Client opting for equity segment (cash market) in Trading Account are mandatorily need to have a Demat Account.

The Demat Account has to be opened with Depository Participant (DP) of either CDSL or NSDL.

TRADING ACCOUNT

In stock trading, the term trading account refers to an account through which an investor can buy and sell securities. The trading account acts as a connector between you, your bank account, your demat account, and the stock market. This is used solely for the purpose of trading.

Trading Account can be opened only by a stockbroker and can be used for both trading as well as investment. The shares purchased through Trading Account are held in Demat Account and shares sold through trading account are transferred from Demat Account to the Stock Exchange through Stockbroker.

The following points describe the basic difference between the trading account and demat account in Equity Trading India

Nature

Demat Account- Used to store actual and other securities you buy in the market.

Trading Account- Operates in the same way as current bank account and serves as a link between your demat and bank account.

Purpose

Demat Account- To hold listed and unlisted securities electronically.

Trading Account- To place an order for trading in securities

Account Opening

Demat Account- Any stockbroker who is also a DP can open a demat account

Trading Account- Any Stock Broker / Broker Member of recognized Stock Exchange.

Approvals

Demat Account- Approval of SEBI (Securities Exchange Board of India), NSDL (National Securities Depositories Limited), or CDSL

Trading Account- No approvals required.

Multiple Accounts

Demat Account- Multiple demat accounts with one DP with purpose.

Trading Account- Only one Trading Account can be opened with one Stock Broker.

Suitability

Demat Account- Anybody who wishes to invest in the stock market and store shares in electronic form.

Trading Account- Anybody who deals in cash as well as derivative segments

Role

Demat Account- Acts like a bank locker, where the securities bought are sold and securities sold are withdrawn.

Trading Account- It is used for placing buy or sell order.

Modes of operation

Demat Account- Electronically (through internet login) as well as physical instructions. A Stock Broker through limited purpose POA given by the Clients.

Trading Account- Online, Offline (through telephone call and trade, Email, personal visit, etc.).

Annual Charges

Demat Account- Account opening charge that varies from Rs. 0 to Rs. 1200 depending on the broker. Also, the annual maintenance charge is also levied.

Trading Account- There is no mandatory charge for the trading account.

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Attention Investors

1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
3. Pay 20% upfront margin of the transaction value to trade in cash market segment.

No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries forrefund as the money remains in investor's account."

Prevent Unauthorized Transactions in your demat account --> Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactionsin your demat account directly from NSDLon thesame day......................issued in the interest of investors."