What is the Difference Between Demat and Trading Account?

Trading in a stock market involves two most important requirements: a Demat account and a trading account. Despite their importance, knowledge of these two components is sometimes not clear cut.

Let us help you understand the differences between these two which might just turn out to be life-saving for you.

A trading account holds securities, cash, and other holdings like any brokerage account. In most cases, trading accounts refer to a day trader’s primary account.

As they often buy and sell assets in the same trading session, their accounts are given special regulation. Assets held in a trading account are not part of assets in a long-term buy and hold strategy.

The diagram shows the interrelationships of a Demat Account, a Trading account, and a Bank account:

Interrelationship diagram

Figure 1. Interrelationship diagram among Trading account, Demat account, Bank account.

What are the Basics of Trading Accounts?

Trading accounts hold securities, cash, and other investment vehicles, just like another brokerage account. The term applies to a vast range of accounts, tax-deferred retirement accounts. Nonetheless, a trading account is differentiated from other investment accounts by the activity level, the purpose of the action, and the risk involved. Activity in a trading account typically composes day trading.

A day trade as defined by the Financial Industry Regulatory Authority (FINRA) is the buy and sell of security on the same day in a margin account. FINRA defines pattern day traders as investors who satisfy these two criteria:

  • Traders who make at least four-day trades (either buying and selling a stock or selling a stock sort and closing that short position within the same day) over a five-day week. over a five-day week.
  • Traders whose day-trading activity constitutes more than 6 percent of their total activity during that same week

How to Open a Trading Account

Opening a trading account requires certain minimum personal information, including social security number and contact details. Your brokerage firm may have other requirements depending on the jurisdiction and its business details.

Step 1. Select the stockbroker or firm. Qualify the reputation of the broker based on serving orders promptly. Time is important in the stock market as a few minutes can change the market price of the stock. Thus, make sure that you select a good broker.

Step 2. Connect with the brokerage firm or broker and make inquiries about the trading account opening procedure. In most cases, the firm would send a representative with the account opening form and the Know Your Client (KYC) form.

Step 3. Fill the two forms and submit two documents as proof of your identity and address.

Step 4. The application is verified either in-person or by phone, where you will be asked to present your details.

Step 5. After completion of documentation, you will be given your trading accounts details.

Demat Account vs. Bitcoin Wallet

Demat account is an account for holding shares and securities converted to electronic format. Demat account is the short term for dematerialized. As the Demat account holds shares that have been bought or dematerialized, online trading is easy for the users.

We might make an analogy of the Demat account with a crypto wallet that is used to store Bitcoins and other coins. In the case of cryptos/Bitcoins, the storage facility is a software program. A private key (secret number) corresponding to that wallet’s Bitcoin address provides access for the user. Nothing is lost as long as no one can access the key,

In the case of the Demat account, a considerable amount of the investment is deducted: trading charges, brokerage charges, taxes, and so on. You need the paid services of a registered broker to open a Demat account. Thus, you lose a considerable part of the investment in brokerage charges.

On the contrary, buying bitcoins is lucrative, with minimal transaction fees. These transactions are also clean, fast, transparent, and non-reversible transactions. Pick a suitable bitcoin wallet, the right crypto exchange, and you’re ready to go trading.

How to Open a Demat Account

The first step is to select which Depository Participant (DP) where you want to open a Demat account. There are many kinds of Depository Participants. You can get those DPs on the websites of depositories.

Before coming into conclusion with your Depository Participant, you need to qualify fees charged by the Depository Participant, the Depository Participant’s quality of services, and many others.

Follow these steps to open a Demat Account in the connecting Bank:

Step 1: Visit the Depository Participant (DP) i.e., connecting Bank.

Step 2: Accomplish an account opening form. The DP will provide you an account opening form. You need to fill up all the columns of the form correctly.

Step 3: Submission of required documents along with the account opening form

Step 4: In-Person Verification

Step 5: Sign an agreement with DP

Step 6: Obtain a Demat Account Number

Bank Account Links with Demat and Trading Accounts

Choosing the appropriate Demat account should be a smooth process between the bank and the brokerage account. When making investments and buying and selling in equities daily, the investors have shifted to the modern platform and use the internet and apps to complete trading.

Therefore, a well-established connection must be made between the bank account and the trading account, also the trading account with the Demat account (refer to figure 1).

The digital platform is very convenient compared with the old means of physical trading. Meeting the broker in person may not be possible due to his location.

Moreover, doing investment and trading through the internet saves on time. Online trading favors many of the investors as they may be busy doing other things.

You can choose, 2-in-1 account and 3-in1 accounts. The 3-in-1 account connects the three accounts: a bank account, trading account, and Demat account. These accounts are mainly given by the middlemen that are registered and own a group license. Many of the banks offer the 3-in -1 version.

The question is, how does the 3-in-1 account operate? The person who wants to invest has to move some funds from the savings account to the trading account. Demat functions as a storage for stocks on deposit. Stocks sold are withdrawn from the Demat.

In most cases, private DPs helps investors process their Demat accounts and trading accounts.

As a recap, if the bank account, Demat, and trading account are joined smoothly, users will enjoy an economical and straightforward transfer of cash and services without further hitches.

The table summarizes the differences between the Demat account and the Trading account which we have already discussed.

Demat Account and a Trading Account

Figure 2. Comparison between a Demat Account and a Trading Account


A seamless interface connecting the bank account, the Trading Account, and Demat account enables an economical and straightforward transfer of money and service. Both these accounts, as different as they may be, are crucial for any trading in the share markets.

An investor buys the shares of any company using the trading account but a Demat account is also needed for supplementing the value of what goes into a stock sale deal.

Thus, in order to trade in the stock markets, it is mandatory to have both a Demat and a trading account. With finality, we can say that there are huge differences, but what’s important is knowing and leveraging their uses for your assets.

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About Ramya Karamsetti

Ramya, well known Content Editor at Cryptopolitan. She loves to create wonderful write ups of real value that serve the Finance, Crypto, and business audience. Her hobbies are travelling and reading scientific stories.
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