Open A Trading Account- Definition, Difference Between Demat & Trading

8 Jan 2016 | 13:00PM

Your demat account and your trading account have two different purposes altogether. However, demat and trading account are also very closely interrelated. In fact, your actual stock market activity is a close interplay between your trading account, dmat account and your bank account. Let us understand what is the difference between demat and trading account. The combination of trading account and demat account is popularly known as 2-in-1 account in stock market parlance. Let us now look at the difference between trading and demat account in greater detail

Demat account is stock while trading account is flow?

The fundamental difference is that trading account captures your capital market transactions over a period of time. Therefore, it is in the nature of flow of transactions over a period of time. On the other hand, demat account is the holding of shares and other securities at a point of time. While trading account captures your income and transaction effect, it is the demat account that actually captures your wealth effect.

Demat is measured at a point of time; trading over a period of time

This follows logically from the previous point. When you look at trading account versus demat account or when you look at demat account versus trading account, this is the fundamental difference. Since trading account captures transactions over a period of time, it is always measured over a period of time (1 month, 3 months, 1-year etc). Demat account being ownership of securities is always measured at a point of time (normally as on 31st of March of each financial year).

How trading and demat account interface when you buy shares?

To understand what is demat and trading account in the right perspective, let us look at what happens when you place an order to buy shares. Let us say, you place an order to buy 100 shares of Reliance Industries at Rs.910 and the order is confirmed. Then you will have to pre-fund your account to the extent of Rs.91,000/- or latest by 11 AM next day morning. On T+2 day, the shares are automatically credited to you demat account. When you are an online trader, this entire process is totally seamless.

How demat and trading account interface when you sell shares?

Let us assume that you sold 500 shares of Tata Motors at Rs.420. The trading engine will have to first satisfy itself that you have balance of shares in your demat account. Once you have the required balance in your demat account, the 500 shares will be debited to your demat account on T+1 day and the amount of Rs.2.10 lakhs are credited to your bank account on T+2 day. In case of offline account, you need to provide the debit instruction slip (DIS) to your broker on the same day. This problem is solved in case you have an online account and you have given Power of Attorney to your broker. In that case, the entire process is seamless.

Can we sell shares on T+1 before it comes into your demat account?

This is an interesting question. Assume that you bought shares of Tata Steel on Monday. You will get the demat credit only on Wednesday evening. That means you can effectively sell it only on Thursday. What if the price has moved up by 10% on Wednesday morning? Can you sell it before it comes to demat? The answer is yes. The broker will allow you to sell the shares before it comes into your demat account. However, there is a risk that you may not get the delivery on T+2 day due to short delivery. In that case your shares will go into auction and will come into your demat account only on T+3. That means your sale of shares could turn bad. That is the risk you run when you sell shares that have not yet come into your demat account.

Can I have a demat account without a trading account?

Yes, that is perfectly possible. If you apply for an IPO then you only need a demat account to hold these shares on allotment. If you only intend to hold these shares and do not want sell these shares, then demat account alone will suffice. However, if you intend to sell these shares then you will be required to first open a trading account. Only after your trading account is activated and your demat account is linked to this trading account can you sell these shares.

Can I have a trading account without a demat account?

Demat account is only required if you want to hold shares in demat form. So, if you have opened a trading account and only intend to trade in futures and options then demat account is not required. That is because futures and options in India are cash settled and do not result in delivery. However, if you intend to deal in equities the demat account is a must. Can you avoid a demat account if you only intend to trade equities intraday? The answer is no! The moment you intend to trade in equities, SEBI regulations insist that you open a demat account along with your trading account.


Remember, not all your trading account transactions will result in delivery into the dmat account. For example, intraday equity trades, futures trades, options trades and currency trades are executed in your trading account but they do not impact your demat account. Similarly, you can buy IPOs, RBI bonds and Gold Bonds directly into your demat account without your trading account getting involved. That is the crux of your demat versus trading account debate!