Demat Account vs Trading Account: Key Differences

How to Open Demat and Trading Accounts?

Many people often wonder how to open demat account and trading account, and whether they should be opened separately. Investors and traders can open a demat and trading account by following these simple steps:

• Choose a reputable broker or financial institution that offers demat and trading account services.
• Fill out the account opening form, providing necessary details such as personal information, bank details, PAN card, Aadhaar card and photographs. You can also open the account online through their mobile application or website.
• Submit the required documents, including proof of identity, address proof, PAN card and passport-size photographs.
• Complete the KYC (Know Your Customer) process. This involves in-person verification or video verification or OTP-based verification.
• Sign the necessary agreements and declarations provided by the broker or financial institution.
• Finally, you can transfer money into your accounts and start trading.

The Difference in the Charges of Demat Account and Trading Account

As the demat account and trading accounts are different, so are their charges. Following are the different charges being levied in the demat account and trading accounts:

• Demat Account Charges: Demat account charges normally include account opening fees, annual maintenance charges (AMC), transaction charges for debiting and crediting securities, safety or custodian charges and any other charges as per the depository participant’s fee structure.
• Trading Account Charges: Trading account charges include account opening fees, brokerage charges for buying and selling securities, transaction charges levied by stock exchanges, Securities Transaction Tax (STT), Goods and Services Tax (GST), and other charges as per the broker's fee structure.

The Role of Trading Account and Demat Account

Both the demat and trading accounts have their unique roles. They are as follows:

• Demat Account: The demat account facilitates the safekeeping and electronic transfer of securities. It holds the shares and other securities in a dematerialised form and shows a clear picture of the investor's holdings. When shares are bought or sold, they are debited or credited to the demat account respectively.
• Trading Account: The trading account enables investors to place buy and sell orders in the stock market. It provides access to the stock exchanges and various trading platforms. It allows investors and traders to monitor market movements, analyse stocks and executes trades.

Can You Open a Demat Account Without Having a Trading Account or Vice Versa?

Yes. It is possible to open a demat account without having a trading account. However, this limits the functionality of the demat account. A standalone demat account allows investors to hold securities but does not provide the means to trade them. On the other hand, it is not possible to open a trading account without a linked demat account because the transfer of shares is essential for trading transactions.

For instance, if a trader only wants to trade in futures and options, they do not require a demat account. Furthermore, if an investor has applied for an Initial Public Offering (IPO) and only wants to hold the shares for a while, then a trading account will not be required. However, when a trader or investor wants to trade in equities, they will compulsorily require both demat and trading accounts.

Conclusion

Understanding the difference between demat and trading accounts is crucial for investors and traders who are active in the stock market. While the demat account holds securities in an electronic format, the trading account facilitates buying and selling transactions of those securities. Opening both accounts is a recommended action for active trading and seamless management of securities. It is important to consider the charges, roles, and functionalities of these accounts when venturing into the stock market.

You should open both a demat and trading account with a common broker and enjoy uninterrupted service. Bank of Baroda provides the facility to open low-cost demat and trading accounts with a seamless trading and investing experience. Moreover, the costs associated with opening and maintaining the demat and trading accounts are quite low. Start your trading and investing journey with the Bank of Baroda today.

FAQs on Demat Account vs Trading Account

Q: Do I need both demat and trading accounts?

A: It depends upon the level of transactions you wish to undertake. If you wish to actively participate in the stock market, it is recommended to have both a demat account and a trading account. While the demat account holds your securities in a dematerialised form, the trading account allows you to buy and sell your securities.

Q: Who can apply for demat and trading accounts?

A: Any person who wishes to invest or execute the trade in the stock market can apply for opening the demat and trading accounts. These normally include individuals, resident Indians, NRIs, HUFs (Hindu Undivided Families) and corporate entities.

Q: Is a demat account different from a trading account?

A: Yes. A demat account and a trading account are both different and they serve different purposes. A demat account holds your securities electronically and acts as a repository. While a trading account enables buying and selling of securities in the stock market.

Q: Is it mandatory to add a nominee while opening a demat or trading account?

A: Opting-in/ Opting-out of nomination is mandatory in Demat Account. But it is always advisable to add a nominee to the demat and trading accounts for succession planning. This will ensure the smooth transfer of assets in case of unforeseen circumstances. Otherwise, your heirs and legal representatives will face difficulties in claiming your securities.