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Difference between Trading and Demat account (Trading Vs Demat Account)

Published on Friday, September 7, 2018 by Chittorgarh.com Team | Modified on Sunday, August 9, 2020

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To trade in exchange offered financial instruments like stocks, derivatives and IPO etc., you need a trading account and demat account. You cannot trade with these accounts. A trading account and a demat account are different from each other and serve different purposes.

The Need for Trading and Demat Accounts

Before digitalization of stock exchanges, traders had to go to stock exchanges and verbally bid for financial instruments to trade. The certificate of their investments were transferred in hard copies. All that changed when BSE, NSE, MCX etc., adopted technology and enabled online trading. This necessitated the need for trading and demat accounts.

Online trading allows you to trade from anywhere. To facilitate online trading, a trading account is necessary. And to facilitate transfer of certificates of financial instruments, a demat account is needed.


What is a trading account?

To buy and sell stocks, derivatives etc., you need a special account which is called the trading account. A trading account is opened with a brokerage company which then gives you access to a platforms. The platforms are available on web and mobile. You can use these platforms to buy and sell financial instruments in various exchanges.


What is a demat account?

A demat account works like a bank. It is an online place where all the certificates of your holdings are stored. When you buy a financial instrument, the certificates are automatically credited to the demat account linked with your trading account and are debited when you sell the holdings.

The demat accounts are managed by central depositories in India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Securities Limited). Brokerage companies only act as an intermediary between the investor and the central depository.

Demat Account Vs Trading Account

Trading Account

Demat Account

Purpose

Enables buying and selling of financial instruments in exchanges.

Acts a bank that stores all the certificates of holdings purchased through the linked trading account.

Managed by

Brokerage Company

Central Depository, Brokers act as an intermediary

Types

3-in-1 and 2-in-1 accounts

Single type

Eligibility

No criteria, even minors can open an account

No criteria, even minors can open an account

Documents Required

PAN, Address and Identity Proof

PAN, Address and Identity Proof

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Frequently Asked Questions

  1. 1. Can I open a Joint Trading Account?

    No, a joint trading account is not allowed. By law, it becomes a partnership firm.

    A Demat account could be opened as a joint account. Up to 3 people could be part of the demat account. The demat account also has a nomination facility. 

    Ket Facts

    • One person can open only 1 trading account with a particular broker.
    • One person can open as many trading accounts as he wants but each should be with a different stockbroker.
    • A trading account can be opened in the name of a partnership firm, private limited, HUF, etc. 
    • A demat account cannot be opened in the name of a partnership firm. It has to be open in the name of the partner.

    A trading account is to buy/sell shares in the stock market. An investor needs a trading account with a stock broker to deal in the stock market.

    A demat account holds the shares in digital format. A demat account is like a bank account but it holds securities instead of money.

     

  2. 2. Can I open a joint demat account?

    Yes, you could open a "Joint Demat Account" with any broker. Up to 3 people could be part of the demat account. The demat account also have a nomination facility.

    The process of Joint Demat Account opening is manual. We recommond ProStocks broker to open your Joint Demat Account convniently.

    Note that a trading account could open only on one name. This is as per the regulation.

    A trading account is used to buy/sell shares while a demat account holds the shares in digital format. A demat account is like a bank account but it hold securities instead of money.

     

  3. 3. Can I open a demat account on Educational Beneficiary Trust or Marriage Beneficiary Trust?

    There are two types of trusts in India, registered trusts and unregistered trusts.

    1. Registered Trust

      A demat account can be opened easily for a registered trust with any broker.

    2. Unregistered Trust

      A demat account can be opened for an unregistered trust (in the same way as Partnership Firm) where:

      • The name on the demat account will be settlers or Trustee's name.
      • The PAN number will be of the trust.

     

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