Demat Account Vs Trading Account - Differences, What It Is, & Which is Better

What Is a Trading Account?

A trading account is the connection to purchase and sell securities in the stock market. It is your entry into the marketplace as every order you give to buy or sell shares is done through your Trading account.

The trading account connects the bank account and your Demat to create a three-way system for smooth movement. When you buy shares, the amount is automatically debited from your bank account, and the shares are credited to your Demat account.

Similarly, when you sell shares, the shares are debited from your Demat account and the amount is credited to your bank account.

Demat Account vs Trading Account

While both accounts are part of investing, they serve their own purposes. A Demat Account stores your assets securely and in digital form, whereas a Trading Account allows you to buy and sell shares on the stock exchange.

For example, if you buy 100 shares of any company:

• You place the buy order through your Trading Account.

• The amount is debited from your Bank Account.

• The shares appear in your Demat Account.

This seamless connectivity allows the three accounts, bank, trading and Demat, to work together in a transaction cycle. What Is Important for Whom?

How significant each account is depends on an investor's personality and purpose?

A Demat account is essential for long-term investors because it safely holds their stocks and investments for many years.

The Trading account takes priority for active traders who buy and sell on a routine basis. The Trading account will allow traders to initiate trades quickly, maintain price movements, and identify short-term trades.

One should remember that both accounts depend on one another. One must have a trading account to trade and a Demat account to store their investments both accounts are helpful for an investor in the stock market.

How to Open a Demat and Trading Account

Fees and Expenses

There are costs associated with maintaining Demat and Trading accounts.

Demat accounts typically charge an Annual Maintenance Charge (AMC), which can be in the range of ₹300 to ₹800 per year.

When it comes to Trading accounts, investors are required to pay the brokerage fees every time trades are executed, which may differ from broker to broker and can vary by transaction type.

Upstox makes investing more affordable by offering a free trading account with no annual maintenance charge in the first year, providing a convenient option for new investors.

Which Is Better?

Both accounts, Demat and Trading, are a necessity for any investor or trader. The Demat account stores your holdings safely, and the Trading account lets you execute trades. You cannot have one without the other.

If you're new to investing and trading, it is recommended that you choose a broker that offers a 2-in-1 or 3-in-1 option to make your life easier as you invest, from putting cash in the account to executing trades and storing your investments.

FAQs

Are both accounts necessary?

Yes, if you want to invest or trade in the stock market, then yes you would need both a Demat account and a Trading account. The Demat account will hold the shares and the Trading account allows for the buying and selling of said shares.

Can I only open a Demat account?

Yes, you can. But for stock trading or investing, you would ultimately need to have both a Demat account and a Trading account connected for trading purposes.

Is there any yearly fee?

Yes, most brokers that offer Demat accounts will charge an Annual Maintenance Charge (AMC) for your account that falls between ₹300 - ₹800.

What documents do I need to open an account?

When applying for a Demat and Trading account, be prepared to provide your PAN, Aadhaar, bank details, a passport-sized photograph and your digital signature.

Which one is the better broker?

The answer to this question varies according to individual needs. If you need investment advice and possible research or support is needed, then usually a full-service broker would be needed. If you are seeking lower brokerage fees and don't need advice and are managing your investments, then a discount broker might work.