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

Published on Friday, September 7, 2018 by

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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.

Difference between a Trading Account and a Demat Account

Deamt & Trading Account Comparison

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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