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Difference Between Trading Account and Demat Account

Difference Between Trading Account and Demat Account

When your broker opens your trading account, they typically open a trading cum demat account. That is because these two accounts normally go together. What is demat account and how to open a demat account are the basic questions.

The bigger question is the difference between ademat and trading account. Demat and trading account is not one and the same. While your trades are executed in the trading account, the ownership impact is felt in the demat account. You cannot hold shares in your trading account except for a very short period of time. Similarly, you cannot trade solely with your demat account.

Now that you have understood the nuances of trading and demat accounts, let’s deep dive and observe it more closely…

Trading account is a flow, Demat account is a stock

This is the most important difference. The trading account is a record of transactions of purchase and sale of shares. An intraday trade is typically executed in the trading account but it does not impact your demat account as there is no ownership created due to net position being zero. Only the net equity positions in your trading account have an impact on your demat account.

Demat is about ownership of securities not about contracts

This is another very important difference between a trading account and a demat account. You can use your trading account to buy and sell equities, buy and sell futures or even trade in options. Your equity trading account can also be used to trade currency futures. But equity futures, equity options and currency futures do not impact your demat account. That is because these are just contracts and do not represent ownership of assets.

Demat; trading account and banking are linked in a seamless loop

Your trading activity is a combination of your purchases and your sale. However, trading is not just about trades but also payments and custody of shares. This is how it works. When you buy shares in the trading account, the account has to be pre-funded or you have to pay from your bank account by T+1. Then on T+2 day the shares get credited to your demat account.

When you sell shares, then the demat account gets debited on T+1 day to the extent of shares sold and the net amount (after costs) gets credited to your bank account on T+2 day. That is how the relationship works.

Demat account and trading account in case of an IPO investment

When you apply for an IPO you require a demat account to get the allotment of shares credited. But do you require a trading account to apply for IPOs. The answer is you don’t! If you plan to get the allotment and just hold the shares in your demat account then you do not require a trading account.

But the day you decide to sell the shares in the market, you will require a trading account. Shares cannot be sold directly from the demat account but only through the trading account.

Can I have a trading account without a demat account?

The answer is technically, yes. If you only intend to trade in equity futures, index futures, index options, stock options or currency derivatives then you only require a trading account and not a demat account. All these are contracts and do not create any ownership rights.

Hence, you can trade all these derivative contracts without a trading account. But, if you want to trade equities, even if only for intraday, you will require to have a demat account too.

What is the eligibility for opening trading and demat account?

There is no eligibility criteria for opening a trading account or demat account If you are competent to enter into a contract under the Indian Contracts Act then you are eligible to open a trading account and a demat account. You just need to complete the KYC and the documentation. There is a catch here.

As long as you only intend to trade equities, the account opening process is very simple. However, if you want to also trade in futures and options then the broker will insist on your income proof to ensure that you have the risk bearing capacity. This proof can either be in the form of your bank statement or Income Tax Returns of the last two years.

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"Prevent Unauthorized transactions in your Trading/Demat Account --> Update your mobile numbers/email IDs with your stock brokers/Depository Participant. Receive alerts/information of your transaction/all debit and other important transactions in your Trading/ Demat Account directly from Exchange/CDSL at the end of the day .......... Issued in the interest of investors." | "KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary." | "No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorize your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account." |"Investment in Securities Market/Commodity Market is subject to Market Risk. | RGESS investors kindly download New Retail Investor Certificate from link - https://www.cdslindia.com/investors/rgessverification.aspx | Dear Investor kindly update Aadhar Number with your demat account, contact your nearest branch."
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