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What Is The Difference Between A Demat Account And Trading Account?

Demat accounts Vs. Trading accounts are always a constant confusion, and we are here to solve it once and for all. What is the difference between a demat account and trading account? 

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If you wish to trade in the markets, you should know a few essentials. Two of the most critical conditions for stock market trading are a Demat account and a trading account. A Demat account is a place where you can keep your shares or other valuables in a non-physical form.

A trading account allows you to make transactions. Despite the fact that these two accounts are critical, many individuals are confused about them. Keep reading to understand more about the two accounts.

What is a Demat Account?

A Demat account is just a place where you may keep your shares in a digital form. A Demat account dematerializes shares by converting them from physical to electronic form. When you create a Demat account, you will also be granted a Demat account number that will allow you to complete your trades online. 

A Demat account functions similarly to a bank account in that it holds your money and allows you to deposit and withdraw it. The assets are also kept, debited, and credited to your Demat account. You don’t need any shares to start a Demat account; in fact, your account might have no balance at all. In case if you need a helping guide while choosing your demat account, click Here How To Choose Best Demat Account.

What is a Trading Account?

To engage in stock trading, you’ll need a trading account. This is because when a company registers its stock on the stock exchange, you can trade it on an electronic system using a special account known as a trading account.

You can open one by filing with a company or a brokerage. You will be given a unique trade ID with this account, which will allow you to perform trading operations.

What Is The Difference Between A Demat Account And Trading Account? 

Functionality

Each account’s tasks are one of the primary differences between the two accounts. A trading account is often used to buy and sell stocks by deducting funds from your already existing Demat account and reselling them in the exchange. 

But on the other end, a Demat account allows investors to maintain their financial products digitally. Then it also operates in the sense that you may convert your digital securities to cash and credit in the physical form.

Nature

A trading account is similar to your present bank account in that it connects to both your Demat and your checking account. It operates by withdrawing your shares from your Demat account and selling them on the market. 

A Demat account is where you keep the shares and securities you purchase from the market. A Demat account behaves similarly to a savings account instead of a trading account, which functions similarly to a current bank account.

Purpose

As varied as they are, both of these accounts are essential for any trader and investors, especially in the stock exchange. When you acquire stock in a firm as an investor, typically, you do it through a trading account. Money from your credit account is debited, and the stocks are shown in your Demat account, in which they are also credited.

When you sell shares using your trading account, the funds are deducted from your Demat account and subsequently sold on the market. This sale’s revenues will be deposited to your bank. As a result, having both a Demat and a trading account is required to trade in the stock markets.

Account Charges

Demat Account

These would be the fees that your broker will cost you to open a Demat account. Such an account is normally free if the broker is from an established financial institution. This is because the financial institution providing brokerage services has been doing this for a purpose. 

The bank plans to increase income by increasing transaction fees, a popular corporate strategy. That’s why, when you start, you should double-check the account opening costs against any other bank-related expenses.

Fee for maintenance and upkeep

This cost is levied once a year and must be paid in advance in order for your account to remain active and offer you regular services. The fee is usually between 300 and 800 INR; however, it isn’t always proportional to the amount of service.

Fee for a custodian

The brokerage business charges a custodian fee for the safekeeping of your stocks. This is usually levied once a year and is dependent on the number of assets owned by a company. It may vary (Rs. 0.5-1) per ISIN (number of securities) in a month.

Fees for transactions

Typically, a brokerage business will charge a fee for each trade. These fees are usually calculated depending on the number of stocks involved as well as the deal’s value. Depositories’ fees, such as CDSL’s, are also handed on, via many brokers add substantially greater margins to this price. Depending on the plan and broker you use, you may be charged a transaction fee.

Along with these, you might also face a dematerialization fee.

Trading Account

There are several charges involved with a trading account. These fees are calculated according to the number of trades processed via the account. These fees differ from one company to the next.

Fees for opening a trading account

A trading account is normally free when the company is a bank. If it’s from a private brokerage, you might face respective charges.

Fee for annual maintenance

This charge is frequently paid in advance each year to keep your account active and ensure consistent service. Many brokerage firms bundle this process with registration fees to make it as simple as feasible.

Fees for transactions

You will have to pay a brokerage charge, which can vary according to the plan and broker you select. A brokerage firm’s fees are normally calculated based on the number of trades and transactions, either in value or the number of stocks. The transaction charge rises in tandem with the number of transactions.

Wrapping Up

Remember that it’s possible to have a Demat account without needing one for trading. If you’re looking to hold on to shares without selling them quickly, a Demat account can help you simply store them. Similarly, you can also have a trading account without a Demat account. You can simply trade and not have any share delivery in this case.

We hope this article about What is the difference between demat account and trading account? Helped you understand the aspects of online trading. 

About Mohanraj

Mohanraj is SmartFinder's Top Editor.  Have written over 700+ posts for SmartFinder with a team of tech experts. Passionate about technology, Mohan is keen on bringing the latest tech news to millions of internet users in India. Find him on Twitter and Linkedin.

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