The main difference between a Demat and a trading account is that a Demat account is used to hold its securities, such as its share certificates and other documents in electronic format, while a trading account is used to purchase these securities in the stock market to sell them. Although a Demat account and a trading account have two different use cases, they are closely related. Your transactions in the stock market are in close interaction between your trading account, your Demat account, and your bank account.
In stock market terminology, the combination of trading account and Demat is popularly known as a 2-in-1 account.
Here are some differences between the two.
Difference between Demat and nature of trading accounts (stock vs. flow)
The basic difference is that a trading account captures its capital market transactions over time, while a Demat account retains holdings of shares and other securities at the same time. Therefore, a trading account has the nature of the flow of transactions over some time, while a Demat account only captures the wealth effect at a point of time.
This is the fundamental difference while differentiating a trading account to the Demat account. Since the trading account occupies the transaction for some time, it is always measured over some time say like for a one month, three months, one year, etc.). while a Demat account, which is a record of ownership of securities, is always measured at one point which is usually March 31 of each financial year).
How do the trading account and Demat interface working when buying shares?
To understand what a trading and Demat account are, let us see what happens when you place an order to buy shares.
We say you order to buy 100 shares of ‘X’ Company at the rate of Rs. 800, and the order is confirmed. For this, you will have to pre-fund your account to the extent of Rs. 80,000 by 11 am in the next morning. In T + 2 days, the shares will automatically reflect in your Demat account. If you are an online trader, this whole process becomes more seamless.
How do the trading account and Demat interface working when selling shares?
Suppose you sold 500 shares of 'X' company at the rate of Rs 5.00. The trading engine must first ensure that there is a stock balance in your Demat account. Once you have the required balance in your Demat account, 500 shares will be debited from your Demat account in T + 1 day, and an amount of Rs 2,50,000 lakh will be credited to your bank account in T + 2 days. In the case of an offline account, you must provide a debit instruction receipt (DIS) to your broker on the same day. If you have an online Demat account and have empowered your broker, then this problem will be resolved. In that case, the whole process is more transparent.
Having a Demat Account without a trading account
Yes, it is completely possible. If you request an IPO, all you need is a Demat account to maintain actions in the assignment. If you intend to have only these shares and do not wish to sell them, then only one Demat account will suffice. However, if you intend to sell these shares, you must first open a trading account. You can sell these shares only after your trading account is active, and your Demat account is linked to this trading account.