Many times beginners in stock market often gets confused, is the trading and demat account same? what is the difference between Trading And Demat Account? In order to understand the difference between trading and demat account, we need to know them in detail separately. If you know, what is trading account? and its purpose, what is demat account? and why it is used, than you will be easily able to draw the difference in both.
So, let us first know each of them step by step and than draw the differences. Just to let you know, i have tried to explain each of them in detail so that no confusion left for you whatsoever, this may make the post little long but its worth reading the whole. You can also go to any part of the post from table of contents given below.
What Is Trading Account?
In very simple terms, trading account is used for the purpose of placing trades, buy and sell orders in stock market. Without trading account you cannot trade in stock market.
A stock broker will give you trading account with unique Client ID and password, so that you can use his trading platform in order to place trades in share market.
Trading account is useful for making any investment or doing any intraday trades in different financial instruments available, for e.g(Equity, Futures and options, ETF, bonds, Commodity, Currency)etc.
To invest or trade in stock market it is compulsory to open a trading account. Trading account is a gateway for you to enter in to the world of stock markets.
To better understand let us take an example.
You entered a shopping mall and you saw so many different things, after sometime you decided to buy a particular T-shirt, now in order to buy you have to make a payment.
Likewise, stock market acting as a shopping mall, where different stocks are listed and you as a trading account selecting the stocks and making a transaction. Your trading account is the source of funds for the transaction.
Suppose, you buy shares of HDFC Bank, from your trading account through call to your broker or by using there online trading platform they provided to you. The moment you buy and the trade gets executed the purpose of trading account is finished.
The money for buying those shares will get debited from your trading account. In a way you can say the role of trading account is just to do the transaction.
What Is Demat Account?
Demat account is just like a bank, where the shares that you bought as an investment will get stored. One thing you need to keep in mind, role of demat account comes only when you bought the shares in delivery not intraday trading.
In intraday trades you have to complete the transaction same day(buy and sell same day, you cannot carry forward ).
However, in delivery trades where you are buying shares as to keep them for some time you require demat account. Now, those shares that you have bought will require a place to get stored, this is where the role of Demat account comes in picture.
These shares gets stored electronically to your demat account, so that in future when you want to sell them, like after 1 month or even after 3 days or 10 years, you can easily do so by going to your demat account. Once you sell these shares from demat account the money gets credited to your trading account(wallet).
Your stock broker will open the demat account for you, however you should be aware which depository your broker is registered with. In India there are two depositories who offers you DEMAT account & there is no difference in terms of operation or quality of service.
This is your choice to decide which one you want to go and sometime it depends upon your broker too(as they also select which depository they want to associate with).
- National Securities Depository Limited (NSDL)
- Central Depository Services (India) Limited (CDSL)
In other words, a Depository is a financial mediator who offers the service of Demat account.
Note: You do not need to go to them directly for opening Demat account. Just contact your broker where your trading account is opened or you are about to open it.
That’s all you need to know about them, until you are doing any study or courses related to finance.
Now, that you know about trading and demat account, it is very easy for you to differentiate between them.
For those who do not know, who is stock broker?
A stock broker is your gateway to stock exchanges. Stock broker is one of the most essential part of share market. It’s very much similar to a organization (including govt. or private banks and independent discount brokers) registered with SEBI & hold stock broking license with them.
They provide services to an individual trader or investor in opening of a trading & demat account.
The broker helps you execute your buy and sell trades. Once you open account with them they will provide you, your login-ID (client-id) and password to your mobile no., email id.
You can use it to login to their respective trading platforms and start trading online by yourself. If you are not technology driven or do not have much time, you can simply call them and ask them to place orders on your behalf.
However you need to let them know what exactly you want to buy, quantity, at what price etc.. and of course for using this services they charge a little commission know as brokerage.
Difference Between Trading And Demat Account:
In brief trading account is where your buy and sell orders get executed, it is a mode to do the transaction or transfer funds from bank to your stock account. Whereas demat account is where your shares are held(stored) you can sell the shares whenever you want and the money get credited to your trading account from where you can add to it your bank account.
Due to online the process is so seamless that you won’t even realize how fast it happens.
Trading and demat account is a must for investing in the stock market. This is because to trade in the stock markets, you need to be registered with the stock exchange. Stock brokers are registered members of the exchanges. They conduct trades on your behalf.
Using this trading account, you can place buy or sell orders either online through trading platforms or phone (by calling to your broker), which will automatically be directed to the exchange through the stock broker.
So, in a nutshell this is how the complete process happens in the back-end
How To Open Trading and Demat Account Online?
Important Things To Know Before Opening A Trading or Demat Account online With Any Stock Broker :
Stock broker should be registered with SEBI(Securities and Exchange Board of India), It is market regulator in India.
SEBI (Securities and Exchange Board of India) primary objective is to protect the interests of people in the stock market and provide a wholesome environment for market participants. They are just like an umpire who make sure the game is fair for every side.
Stock broker should have good trading platform with advanced tools and resources, but how would you know that?
For that you need to check reviews on moneycontain to know who is best stock broker? Let me tell you one more thing, which you already know but does not pay attention, Review can be given by a person only when that person have experienced the services of a company, you would see money website just pasting information without actually having any experience or tools of that broker.
At moneycontain you would only see reviews of those brokers with whom I have an account.
That is why the reviews on moneycontain are usually long, telling you every aspect of the broker, so that you can make informed decision based on facts rather than just information.
So this is how it goes:
How many Trading and Demat Account You Can Open?
There is no compulsion as such, you can open as many demat or trading account, reason being it may happen the services offered by the broker is not up to the mark after you opened the account. In that case, you can easily switch to other broker.
Usually your bank accounts also gives you the option to have a demat account with them, which you can use in combination with the trading account of any broker.
Having said that it may depend on the broker whether they accept this. However it is preferable to use the same broker to have both trading and demat account, this makes the whole transaction process smooth and seamless.
Which Is Best Online Trading and Demat Account In India?
First of all there is nothing called as best demat account, demat account are offered by the 2 depositories in India, NSDL and CDSL as mentioned above, there is no difference in terms of operation or quality of service.
That is why it is of utmost important for you to know who is having best trading account in India. In my opinion 5paisa and zerodha have all the technological advanced tools which is needed for you. There trading platform user interface is fantastic and have all the things required at one place.
How To Open Free Trading and Demat Account with Low Brokerage?
Brokerage is what you pay to stock brokers in order to place trades and use their services. Hence you should look for quality service with as much low brokerage you need to pay. On a trade if the brokerages are high than the chances of your profit are much less.
Therefore, If you are looking for a free trading and demat account with low brokerage I would suggest you to open an account with 5Paisa. They have no charges for opening a trading and demat account and their brokerage is just Rs.20/per order.
Similarly zerodha does charges you Rs.200 for opening the account and their brokerage is Rs.20 or 0.03% (whichever is lower) of total turnover per trade.
So, suppose if you bought the stock at let say Rs.200, quantity 1000, so total turnover is 200*1000=200000 now on this you will get charged Rs.20 because it is lower than 0.03%(which is 60).
So, my friends this was the most basics and important Difference Between Trading And Demat Account. I hope you have understood this concept.
If you are a beginner it is important for you to know the basics of stock market check this ultimate guide which can help you to get started.
You can also check my reviews on best brokers in India here:
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Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand about Difference Between Trading And Demat Account, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.
Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.
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