Trading account Vs Demat account

When the stockbroking business is on the table, one of the most important topics of discussion is none other than the Trading account Vs Demat account. Since there are a lot of confusions among many traders and investors regarding the Demat account vs Trading account, today we are going to draw a comparative study between these two accounts and analyze them on different parameters. 

Trading account Vs Demat account

From the above comparison and explanation of the Demat Vs Trading account, it is clear that the development of both of these accounts changed the trading process completely and made stockbroking simpler and convenient. Using the Trading account it is possible to trade in the stock market without facing any manual troubles. Trading is as easy as surfing the internet because the Trading accounts can be operated from any mobile trading platform or desktop.

Trading account Vs Demat account

Therefore, the process of online trading is literally at your fingertips. However, as simple as the process sounds it is only possible to use the Trading account and use the Trading platforms by the online stockbrokers and this service comes at a charge. Because of the smooth functionality of trading, the stockbroker has a variety of charges which apply to the Demat and Trading account.

Let us look at the differences in Demat and Trading accounts in terms of the charges. 

Annual Maintenance Charges

This charge is calculated for the maintenance of the Demat and Trading account by the online stockbroker. Demat and Trading account services are one of the most important services provided by any online broker and most often customers look for the best broker who has Demat and Trading account services. While these accounts make most of the trading procedure easy the online broker does have an annual maintenance fee for safekeeping these accounts. The AMC is entirely dependent on the broker and usually, the Trading AMC is free of cost. However, this can differ from broker to broker.

Remat Charges

Remat charge is a common name of rematerialization, which is the process via which the trader can convert electronically held stocks into physical certificates.  As we know that the Demat account is a depository account that holds stocks and shares electronically. The transformation of physical shares and items into the electronic form results in a remat charge which is paid to the broker.

Transfer Charges

The role of a Trading account is to transfer funds and money to and from the Demat and Bank accounts. But sometimes, customers wish to transfer some kind of shares, stocks, or funds from their Demat account to someone else’s Demat account instead of transferring it into the stock exchange. For this off-market transfer, there is a tool that is applicable that is calculated based on the quantity of the transaction. 

Brokerage Charges

The brokerage charges are the most important fee for any broker which is calculated either as a percentage of the total transaction value in the case of the full-service broker and as a flat fee per executed order in the case of a discount broker. The brokerage charges are again different for different brokers and are calculated by considering a lot of other variables. 

Account Opening Charges

Lastly, the most vital part of discussing Demat and Trading accounts is the part of the opening procedure for these accounts. Both of these accounts can be opened with a stockbroker by following the certain procedure of registering a request. While some of the brokers have no charge for the account opening some online brokers demand certain account opening charges for the opening of Demat and Trading accounts. Whether these charges for the opening of these two accounts are the same or different is entirely up to the online broker. 

The last point of the above discussion mentions the account opening charges for the account opening procedure, therefore, the next comparison between Demat and Trading account should be based on different account opening methods.

Note, the below-given procedure is a general outline of the account opening method, there can be some little changes in the procedure for some specific online brokers since all brokers have their methods a general stepwise guide is given to get an idea of the overall process. 

Steps to Open Demat account:

Step 1 – Visit the official website of the specific broker you wish to open your Demat account with and click on the link saying ‘Open Demat account’

Step 2 – This link will redirect you to a page where you can fill out the KYC using personal details like name, number, and email.

Step 3 – You will be required to submit some legal documents like PAN Card, Adhaar Card, etc to prove your identity.

step 4 – A follow-up verification call may be made from a sales manager of the online broker to confirm some of the details in the document. 

Step 5 – After successful completion of this process, you will shortly be handed your Demat account. 

The process to open Trading Account:

 

Step 1 – Choose the online broker you want to start your Trading account with and open the website of that broker. 

Step 2 – You can choose the e- KYC method to open a Trading account which is instant and paperless. Select the account opening option on the site and you will see the pop-up box.

Step 3 – Fill out the box with your name, phone number, and email and submit.

Step 4 -Remember to scan all your original documents and then upload the scanned documents on the site and submit them for verification.

Step 5 – The online e-KYC method verifies the documents instantly and you get access to your Trading account in minimal time. 

 

We can see that the account opening procedure for Demat and Trading accounts is not so much different. Since both of these accounts are generally opened together and used simultaneously the account opening process is also very similar.

Some common misconceptions  

The purpose of this article is to highlight the separate functions of the Demat and Trading account as well as showcase the differences between Demat and Trading accounts. While we have covered all topics under both of the accounts before concluding let us also discuss some of the common misconceptions regarding the Demat and Trading accounts. 

Who can apply for a Demat and Trading Account?

Two categories can open these accounts with any online brokers, they are individuals like any common person, an NRI, or even a minor can open a Demat account but not the Trading account. The other category is of groups which include corporates, financial institutions, AOP, trusts, society, and LLP. 

Are the AMC and Account opening charges the same?

 

The answer is no. The AMC is the account maintenance charge of a Demat account and Trading account which is charged separately from the account opening charge. Sometimes the online broker decides to have no account opening fee but charges AMC and sometimes both the AMC and account opening charges are nill. 

Difference between Demat vs Trading Account 

Before jumping into the differences between Demat and Trading accounts, let us first know what exactly they are. 

What is Demat and Trading Account:

Demat Account

A Demat account is a depository account which means it is a form of digital storage for collecting valuable stocks, shares, funds, bonds, etc. The digital transformation of the trading world changed quite a few prospects of the trading business and one of the most important ones was the shares, stocks, and bonds format. Earlier, with the manual structure of trading, stocks, shares, funds, and all other kinds of trading materials were stored on paper and legal writing but this procedure was both times taking and unsafe. Having the whole online trading system ensured traders and investors smooth and easy trading by making the process fully transparent and electronic,

therefore, any mode of partiality or false transfer is impossible. But with online trading where written papers and documents are not required there has to be a way of making sure that the buying and selling of stocks, shares, and bonds in the stock market is secured and for this purpose, a Demat account is developed where stocks, shares, bonds, mutual funds, etc can be easily stored in an electronic form and when needed these units are transferred using a trading account for either selling or buying more of the same. 

 

Trading Account

The technological up-gradation of the stock market and trading certainly made it necessary for all traders to adopt new methods of trading. A Trading account is one that transfers units from the Demat account into the stock exchange and vice versa. At the time of selling, stocks are brought from the Demat account, and for buying, the brought items are transferred to the Demat account. In a way, the Trading account serves as an unbreakable link between the Demat account and the Bank account because the transaction is not limited to bonds and shares in the Demat account but the Trading account is also responsible for transferring money into and from the bank account when needed.

Thus a Trading account is rightly named as it serves the purpose of trading in the stock exchange. Also, the trading account is the one that facilitates trade from the Demat and Bank accounts. The transformation of online trading introduced Demat accounts but these accounts are only accountable for the storage of electronic stocks, shares, and bonds but the actual trading requires a transaction of these stocks and other units from the Demat account to the stock exchange and for this purpose, a Trading account is developed.

 

Now that we have established what Demat and Trading accounts stand for and work for, we can start the differentiation of these two accounts. Although the difference between Demat and Trading accounts are very visible to our eyes, most often some new investors and traders are confused between these two accounts and for this reason, let us try to differentiate Demat account and Trading account on different parameters:

 

Serviceability

The difference between the serviceability of Demat and Trading account is that the Demat account offers service in safe storage of the stocks and shares which are very valuable for any trader by making sure that these items ( shares, funds, bonds, stocks) are safely stored in the Demat account and cannot be accessed through any other medium. While the service of a trading account is that it offers traders and investors reach these stored stocks in the Demat account and it transfers them into the stock exchange to make the trade. These two are the most important services provided by Demat and Trading accounts because without safe storage and smooth transfer of the stocks and shares, none of the trading activities could take place in the share market. Simply, the serviceability of a Demat account is that it helps restore the stock at a digital platform, and a Trading account is that it helps transfer stocks in the stock exchange.

Nature

The nature of these two accounts can be explained simply. As we know the Demat account is a depository account where stocks are stored electronically. It also means the investor and trader can view their available stocks and other items at any given point in time. This means that if a person is unsure of the number of stocks or shares that he/she currently owns then that person can easily access his/her Demat account by logging in to the website and this way all the available items in the Demat account can be seen. When it comes to the nature of the Trading account, a complete history of all the previous trades of both buying and selling in the stock exchange can be viewed from the Trading account. Since all trading activities are executed using the Trading account it is possible to know all transactions in terms of stocks and money made through the Trading account. 

Operability

The operation of the Demat account and the Trading account is simple and very convenient. The use of a Demat account is generally to store shares that are either bought from the stock exchange or are to be sold in the stock exchange. Demat account is a repository and it only regulates the storage operation but the second part of trading is to develop a connection between the repository and the stock exchange so that a transaction can take place and for this reason, the operation of the Trading account is very necessary. The Trading account is also linked to the bank account so that at the time of online trading any type of monetary transaction is possible. The trading account takes out the required sum of money from the linked bank account for buying stocks in the stock exchange and similarly it takes the money from the selling of stocks in the stock exchange to the bank account. 

Existence

By the existence of the Demat account and Trading account, the question is whether a person can have both or either one of the accounts. The answer to the first part of the question is very simple, any trader can and should have both the Demat and Trading accounts at the same time so that the storage and the trading can run smoothly.

However, the second part of the question is a bit tricky to answer and understand. It is possible to have only a Demat account and not have a Trading account if you wish to only store your funds and stocks and do not wish to trade them in the stock market. This way you will have a Demat account to store your funds and no Trading account to trade them. Likewise, it is also possible to have only a Trading account and not a Demat account but you will only be able to make a trade in the stock market in Futures and Options segments because these do not require delivery of shares. Not having a Demat account to hold your stocks and shares will not allow you to trade in any other segments using just the Trading account. Therefore, the existence of these accounts is thoroughly explained which clearly highlights the differences between Demat and Trading accounts. 

These parameters showcase the basic differences between the Demat and Trading accounts in terms of their functionality, roles, and nature. The comparison is only made based on minimal differences because both the accounts are inter-linked and function online trading. Now let us check out some other differences between Demat and Trading accounts.

Conclusion on Trading Vs Demat Account

Demat account and Trading account are the two most crucial factors involved in any online trading activity. Without having a Demat account you won’t be able to have a digital space to store your stocks and shares and you cannot keep these electronic shares in regular accounts. Similarly, without having a Trading account none of the financial items could be transferred into the stock exchange and bank account. So in order to maintain the trading activity, it is important to function both Demat and Trading accounts. While the existence of both these accounts is side by side, Demat and Trading accounts are different in all respects. In terms of serviceability, nature, and operation. Another difference with these accounts was revealed by their existence. When both of these accounts function and exist together the trade is different but when only one of these accounts functions the trade is specific or not at all functional. 

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