A trading account helps you trade shares within minutes, even seconds. A trader can transact multiple times in a single trading session depending on the market that day using a trading account.
A trading account is used to trade stocks and shares while a Demat account is used to hold or store the stocks and shares that are bought and sold. To be able to trade in shares and equities, you must have a trading as well as a Demat account.
What is a trading account?
A trading account lets you trade in shares and stocks within a short as well as a long range of time. You can indulge in intraday trading as well as inter-day trading using your trading account.
These accounts are registered with a brokerage firm and are assigned a unique ID which is used to perform transactions from this account.
A trading account can be used to trade in non-delivery transactions. If you intend to trade in options and futures in share indices, a trading account is sufficient.
These transactions do not create ownership and the profits and losses can be directed credited to and debited from a trading account. Similarly, you can trade in currencies solely with a trading account.
But according to SEBI regulations, you cannot hold stocks or equities that create ownership in your trading account and any trade inequities requires you to hold a Demat account.
What is a Demat account?
A Demat account is used to hold or store shares and equities that are bought or sold. You can only hold assets owned by you in your Demat account and hence, futures and options, that create no ownership and are contract-based can only be traded and stored in a trading account.
But, while a trading account can be used to produce a non-delivery transaction where you buy and sell within a single day and hence the net delivery remains zero, to trade in equities you have to necessarily hold a Demat account.
A Demat account allows you to hold equities and stocks that create ownership and these may be traded using a trading account. To be able to do this, both these accounts should be linked to each other.
What is the difference?
A Demat account serves as a wallet or a bank that you use to store your assets and a trading account is a medium to access that wallet to perform a transaction.
You may hold just a trading account if you intend to trade just in futures and options. All the F&O transactions are credited or debited in cash and do not create ownership. Hence there is no need to create a Demat account.
On the other hand, if you are planning to trade in stocks and equities, you need to open a Demat account. The same is true of any other transactions that may create ownership. A Demat account may incur annual maintenance charges. A trading account doesn’t incur any such charges and is easier to maintain.
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