You might have heard of terms like demat and trading account, online demat account, demat app and more. Have you ever realised that the terms, demat and trading account are not the same?
Yes, your demat and trading accounts are two different accounts. And as you open demat account, you open a trading account simultaneously. These two accounts work simultaneously with your bank account to execute trades.
Let us learn more about how the best trading platform works, is trading and demat account the same, difference between demat account and trading account and more in the points below. Here are a couple of common questions with answers to clear your doubts”
What Is Demat Account
Before we discuss how to do trading in demat account, let us discuss what a demat account is. Demat stands for dematerialised account, where the securities you purchase exist (are stored) in a digital format. It is just like the money in your bank account, except you cannot withdraw and use it in physical form like cash. However, demat account opening helps you not just in storing and trading in securities, but also keeping as collateral as a medium for availing a loan.
Process Of Opening Demat Account
It is pretty simple to open demat account. The process of demat account opening is available online and offline (by visiting a brokerage firm or a bank). However, the process of online demat account opening is simpler and hassle-free with just a few simple steps:
Here are steps to open a demat account in India:
Ask yourself these questions:
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Do You Have The Required Documents?
Keep all your documents at a single place. You might need an identity proof (PAN card, driving licence, Aadhaar card, passport), address proof (utility bill, bank account statement, Aadhaar card and more), photographs (passport sized), and bank account details (for connecting your demat and trading account).
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Which DP Are You Going To Choose?
Another important step is compare DP charges, demat account opening fees and more. A Depository Participant or DP is an intermediary in the securities markets. DPs provide us with demat services.
To choose a DP you can compare the charges, service, and ratings of different DPs through different online platforms and app ratings.
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How Are You Going To Submit Your Application?
Are you planning to open demat account online or offline?
To open a Demat account, you can either visit the branch of a depository participant or submit an online application. Then, you need to provide the required documents, including identity proof, address proof, and bank account details, along with the necessary fees (if applicable). In online demat account opening (especially in 2-in-one accounts), there are several free demat apps available to investors.
In offline demat account opening, the DP will verify all your submitted information. Once your documents are verified, your demat account will be opened, and you will receive a welcome kit containing important information.
If you opted for online trading, activate your online account using the provided credentials. After demat account opening online, you are ready to start trading by using your demat app and demat login. .
What Is Trading Account
Is trading account and demat account same?
No, difference between demat account and trading account starts from their names.
Your trading account is your ticket to the Indian stock market. When you want to invest in a company, you place a “buy” order through your trading account. If the order is successful, the shares are transferred to your demat account, which is like a digital wallet for your shares. Apart from shares, you can also trade in bonds, ETFs (Exchange Traded Funds) and commodities using your trading account.
So, as their names suggest, a trading account is the place where you trade and a demat account is the place where you store in a dematerialised form.
Here is explaining it with a hypothetical example:
Imagine you want to start a collection of rare coins. You’d need a safe to store them (like a Demat account) and a marketplace to buy and sell them (like a Trading account). In the world of investing, it’s the same. A Demat account is your digital safe for stocks and shares, while a Trading account is your online marketplace to buy and sell them on the Indian stock market.
Here is a table explaining the difference between demat and trading accounts:
| Feature | Demat Account | Trading Account |
| Purpose | You can store securities/assets like stocks, bonds, ETFs and commodities in electronic form. | It is a trading platform that can be used to buy and sell securities/assets like stocks, bonds, ETFs and more. |
| Account Opening | You cannot have a demat account without a trading account. | You cannot have a trading account without a demat account in India, since it is mandatory to hold all securities in dematerialised format in India. |
| Charges | Annual maintenance charges (AMC) might apply. However, there are zero fee or free demat accounts available in the market. | Transaction charges, brokerage fees and other taxes can apply on trades through the trading account. |
Advantages Of A Demat Account
Together, demat and trading accounts offer numerous benefits for Indian investors. You can read about a few of their benefits below:
- Firstly, both these accounts provide easy access to a wide range of investment opportunities, including stocks, bonds, mutual funds, and derivatives.
- Secondly, they streamline the trading process, making it convenient and efficient.
- Thirdly, they offer accurate and real-time market updates and analysis tools to help you make informed investment decisions.
- Finally, they provide a secure and transparent environment for your investments.
How to Trade In A Demat Account
You cannot trade in a demat account. You trade using your trading account. Your demat account is nothing but a wallet to store your assets in a virtual format. To trade using your trading account you can follow these steps:
- Login to your demat app
- Select stocks of your choice
- If having a 2-in-one account, add funds in your trading account
- If having a 3-in-one account, place trade directly.
- You can even trade in a 2-in-one demat account using pledged holdings or Margin Trading Facility (MTF).
If the order is executed, depending on your placed order, there will be a credit or debit of shares in your Demat account.
What Are Demat Holdings
Your demat holdings are dematerialised or virtual holdings of your purchased securities (equities, bond, ETFs, commodities like gold, silver and more. Whatever you have purchased using your trading account, gets stored in your demat account. These holdings are completely virtual and its value aligns with the market movements. The current value or market price of your demat account holdings can be viewed using your online demat app.
Steps To Successful Trading
Before diving into the market, it is important to do your homework on the securities markets. You can start with researching potential investments that align with your financial goals and risk tolerance. Next, you can analyse companies, market trends, and economic news to make informed decisions. Most of this information is available on your demat app.
After you have placed an order and it is executed, it is essential to keep an eye on your investments.
You should not forget to review and rebalance your portfolio from time-to-time as a basic risk management strategy. Additionally, you can be mindful of tax implications and seek professional guidance for the same. When you are ready to withdraw funds, you can place a sell order and the proceeds will be transferred to your linked bank account.
Conclusion
Your demat and trading accounts are your keys to unlocking the Indian stock market’s potential. These accounts provide a secure and efficient way to buy, sell, and hold securities. So, to have a smooth and hassle-free trading and investing experience, you need to make an effort to choose the best trading platform available to investors.