Difference between Demat and Trading accounts? Know how they function and differ from each other

Demat account, Trading account, — Image Source : FILE PHOTO Representative image

Demat vs Trading account: The terms trading account and demat account are often used interchangeably, leading to confusion for many. While both accounts are related, they serve very different roles. The main difference is that a trading account is used for buying and selling shares in the secondary market, and its effect such as debiting or crediting securities are reflected in the demat account. Let’s explore how these two accounts differ from each other.

What is a Demat and trading account?

A Demat account, short for Dematerialized account, stores your securities in electronic form. It converts physical shares into an electronic format, allowing you to hold assets such as shares, bonds, futures and options, exchange-traded funds (ETFs), mutual funds, and other securities. Each Demat account has a unique account number, similar to a bank account. You can open a Demat account with zero balance, and there is no requirement for a minimum number of shares to be held in the account.

While a trading account allows you to buy and sell shares of different companies on the stock market, it facilitates your transactions, enabling you to trade shares. The trading account works in conjunction with a Demat account, meaning the shares you purchase through the trading account are stored in your Demat account. When you wish to sell the shares, you can use your trading account for that purpose. Similar to a Demat account, a trading account also has a unique account number.

Difference between Demat account and trading account

Demat account	Trading accountA
Demat account is used to store the purchased stocks and securities.	A trading account is used to purchase and sell stocks and securities.
One can open it without buying any shares or securities, and it is not necessary to maintain balance in it at any point in time.	To buy and sell various securities, it is necessary to transfer funds to and from the bank account linked to your trading account.
The Demat account also protects from unexpected debits and credits by offering the option to freeze the account for a specific period.	The Trading account keeps you aware of the markets' ups and downs. It even allows you to access it, no matter if the market is open or closed.
With a Demat account, you can easily convert stocks and securities from electronic form to physical form and vice versa in a short amount of time.	Having a trading account provides the convenience and flexibility to trade across various stock exchanges and seamlessly transfer funds and equities. Whether at home or on the go, you can easily access your trading account through devices such as your phone, tablet or laptop.
A Demat account allows you to automatically receive benefits such as dividends, returns, or interest when a company or firm distributes them, simply by holding the account.	A Trading account gives access to all the stock exchanges throughout the country.