Difference Between Demat Account and Trading Account

What is Demat Account And Trading Account

Demat accounts are also known as dematerialised accounts. In the dematerialisation process, the physical shares are converted into electronic shares. The account provides easy storage of shares without the risk associated with physical shares. An electronic demat account is what you get when you convert your physical shares into an electronic format.

In stock markets, trading account meaning refers to an account that is used for buying and selling shares. As soon as you have a Demat Account, you need a Trading Account, which has a unique trading number. To trade shares, you need three accounts: a bank account, a demat and trading account. The Trading Account is a link between your bank account and your Demat account. You can access multiple stock markets by having an online trading account.

The Functionality of A Demat Vs. A Trading Account

The stock market would work differently before digitisation. Thousands of people would be screaming and shouting to place their orders. However, those methods have been replaced by digitisation, which makes everything available online.

From the comfort of your home and with just a few clicks, you can order and store securities in your Demat account. Using a trading account, you can trade other financial instruments like Futures, Options, and ETFs.

What Is A Trading Account?

When a company lists on the stock market, its shares become available for trading on the stock exchange. Earlier, the exchange had an open-outcry system. In the mid-90s, the stock exchanges adopted the electronic system. This means, all trades were conducted electronically. Simply put, you didn’t have to go to the counter and place an order physically. You could do it through a computer, which would verify the details, the market price, and process the trade.

For this reason, you need a special account through which you can conduct transactions. This is called the trading account. Without one, you cannot trade in the stock markets. You register for an online trading account with a stock broker or a firm. Each account comes with a unique trading ID, which is used for conducting transactions. Also, each broker offers different trading account features. Read more about features of trading by Kotak Securities.

Difference Between Demat And Trading Accounts

As a beginner investor, you need to know the difference between demat and trading account since they are crucial for trading stocks in India. Below is a table highlighting the difference between demat and trading account:

Fees And Charges for Opening Demat And Trading Accounts

The following fees and charges are associated with opening a Demat and trading account:

• Demat And Trading Account Opening Charges Depending on the broker, the opening charges for Demat and Trading accounts vary. Considering that both are offered together, there is no separate charge for Demat and Trading accounts. Moreover, some brokers offer free trading and Demat accounts.

• Annual Maintenance Charge It is a recurring fee for maintaining your demat account. Depending on the Depository Participant, the amount may vary.

• Brokerage Charges Stockbrokers charge brokerage fees on the buy and sell transactions you make on the stock market. The fee can be determined based on the transacted value, or it can be a flat fee per order.

• Dematerialisation And Rematerialisation Charges Share certificates that are converted from physical to electronic form are subject to conversion charges.

• Off-Market Transfer These charges apply when you move shares from one Demat account to another without involving a stock exchange. This feature allows users to gift stocks to their friends and family members.

• Custodian Fees Depending on the number of shares held in the Demat account, these charges are levied monthly. For each ISIN, the standard charge ranges from Rs. 0.5 to Rs. 1. Custodian fees are generally not charged by the DPs since most companies pay them a one-time fee.

Online Trading Account Opening Steps?

Just like the demat account, a trading 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 traditionally conduct trades on your behalf.

Most often, stock broking firms have thousands of clients. It is not feasible to take physical orders from every client on time. So, to make this process seamless, it is advisable to open an online trading account. Using this trading account, you can place buy or sell orders either online or phone, which will automatically be directed to the exchange through the stock broker.

Steps to Open A Trading Account:

• First, select the stock broker or firm. Ensure that the broker is good and will take your orders in a timely manner. Remember, time is of utmost importance in the stock market. Even a few minutes can change the market price of the stock. For this reason, ensure that you select a good broker.
• Compare brokerage rates. Every broker charges you a certain fee for processing your orders. Some may charge more, some less.
• Some give discounts on the basis of the amount of trades conducted. Take all this into account before opening an account. However, remember that it is not necessary to choose a broker who charges the lowest fees. Good quality brokerage services provided often may need higher-than-average charges.
• Next, get in touch with the brokerage firm or broker and enquire about the account opening procedure. Often, the firm would send a representative to your house with the account opening form and the Know Your Client (KYC) form
• Fill these two forms up. Submit along with two documents that serve as proof of your identity and address.
• Your application will be verified either through an in-person check or on the phone, where you will be asked to divulge your personal details.
• Once processed, you will be given your trading accounts details. Congrats, you will now be able to conduct trades in the stock market

How To Trade Using Demat Account?

Step 1: Link your trading and demat accounts. This way you won’t have to keep supplying your demat account details for every transaction.

Step 2: Place an order through your online trading account. This could be a market order, a limit or buy order, or an after-market order. If your brokerage allows you to place orders through the phone, then you will need to supply your trading account details.

Step 3: The exchange will process your order. It will verify the details of the transaction, the market price, the availability of the shares in the market, and so on. It will also check the details of your demat account that is linked to your trading account. This is especially so in case of a sell order.

Step 4: Once the order is processed, the shares will be either deposited in or debited from your demat account.

You can visit this page to understand about the offerings of Kotak Securities Demat account and open one as well.

Can You Transfer Shares Using Demat Account?

• Nomination: Yes, nomination is possible. You can have a nominee of your choice by filling up the details in the account opening form. This enables the nominee to receive the securities after the death of the holder of the demat account.
• Between DPs: Transfer of shares is possible between demat accounts held with different DPs. You need to fill the Delivery Instruction Slip Book (DIS) and submit the same to your DP for transferring your shares from another demat account. However, you need to check whether the central depositories are same or not (CDSL or NSDL). If both of them are different, then you need an INTER-Depository Instruction Slip (Inter DIS). If they are same, then you need an INTRA Depository Instruction Slip (Intra DIS).

Do try to submit that DIS when the market is on. Then, the date of submission of DIS and date of execution of DIS would be the same. Otherwise, there may be a delay. You may also need to pay the broker some charges for the transfer.

Conclusion

There's a connection between the trading and demat accounts. You need both of these accounts to trade. Also, when selecting a broker for a demat account, ensure it meets your investment needs. Investments and trading in the stock market involve Demat, Trading, and bank account. Without a Demat and Trading account, stock market investing cannot be done digitally. A Demat account stores your stocks safely, and a trading account facilitates transactions. Although these are two separate accounts with different purposes, an investor won't have to go through two separate processes since the integration, enabled by technology, makes the process seamless. Additionally, consider all the fees and charges associated with demat and trading accounts.