To make purchases and sales of shares, investors will require several accounts. A trading account is used to make purchases and sales on the stock market. Whereas a Demat account stores any securities bought in an electronic format. Despite the two accounts being linked they have different functions. Knowing that there is a difference between a Demat and Trading account will help investors understand how purchases of shares happen, where their holdings are stored, and how sales will be made.
What Is a Demat Account?
Demat account is an electronic account in which shares and other eligible securities are held. The term Demat stands for dematerialization, which means converting physical share certificates into electronic format.
Once you have bought shares on a stock market, the share will be credited to your Demat account (linked) after settlement of the trade. You can view your holdings, track changes to your portfolio, and view account statements via the services of your depository participant.
Opening an online Demat account will allow you to easily open your account (depending on the providers’ verification process). It will also make it easy to view your security.
In India, Demat accounts are kept with a depository participant, that is linked to either NSDL or CDSL. The depository participant is the connecting point between your account and the depository.
What Is a Trading Account?
An investor can buy and sell various securities through a trading account. It provides a means to link your investments to the stock market through a registered stockbroker.
Whenever you wish to buy any share, you place an order through your trading account. The broker will then pass the order to the exchange where it will be matched with an appropriate seller. Once the deal has been completed and settled, the shares will be credited into your linked Demat account.
Your trading account will provide details of your transactions such as what deals have been made, at what price they were bought, and how much money you have made from selling. This can be used by investors to see what has been going on in the market.
Unlike a Demat account, a trading account is not used to store any shares. It is simply used to carry out transactions within the securities market.
Key Differences Between Demat and Trading Accounts
Both accounts are needed for regular delivery-based share transactions, but their functions differ.
| Basis | Demat Account | Trading Account |
| Main purpose | Holds securities electronically | Facilitates buying and selling |
| Function | Maintains investment holdings | Places orders on stock exchanges |
| Managed through | Depository participant | Registered stockbroker |
| Records | Shares and other securities held | Buy and sell transactions |
| Used for | Viewing and maintaining holdings | Executing market orders |
The distinction becomes clearer when investors understand how the Demat and trading account work together. One handles the movement and storage of securities, while the other helps complete market transactions.
How Do Both Accounts Work When Buying Shares?
A share purchase involves a series of steps, with both accounts playing different roles.
- Order Placement: The investor selects a company and places a buy order through the trading account.
- Order Execution: The stock exchange matches the order with an available seller, subject to the market price and order conditions.
- Trade Settlement: Once the transaction is completed, the settlement process begins according to the applicable exchange cycle.
- Credit of Shares: The purchased shares are credited to the investor’s Demat account after settlement.
For example, if an investor purchases 20 shares of a company, the trading account records the transaction. After settlement, those shares appear in the linked Demat account. The investor can then view the quantity held and its current market value.
How Do Both Accounts Work When Selling Shares?
The process works in the opposite direction when an investor decides to sell shares. The investor selects the securities held in the Demat account and places a sell order through the trading account. The broker forwards the order to the exchange for execution. Once the trade is completed, the required quantity of shares is debited from the Demat account during settlement.
The sale proceeds are credited to the linked bank account according to the applicable settlement and payout process.
Investors should ensure that sufficient shares are available in their holdings before placing a delivery-based sell order. They should also check applicable brokerage and transaction charges.
Conclusion
A Demat account stores securities, while a trading account helps investors buy and sell them through the stock market. Both serve different purposes but work together during share transactions. Understanding these functions helps investors manage their holdings and market orders more effectively. Before opening a Demat and trading account, investors can review the available account features and investment tools offered through 5paisa Alpha.