Demat vs Trading Account: What’s the Difference?
Neha Navaneeth
Marketing & Content Associate
Nov 25, 2025
Two accounts are mandatory to invest in the stock market: a Demat account and a trading account. The two are closely related, yet they are used for different purposes in the investment process. Understanding the difference between demat and trading account is key for anyone looking to invest in shares, mutual funds, or other securities efficiently and safely.
What Is a Demat Account?
Digital securities are held in a Demat account (Dematerialised Account). Investors can now store, transfer, and manage their investments in a digital format with the aid of a Demat account, as opposed to working with physical share certificates.
On buying shares, they will be registered in your Demat account. Likewise, at the time of sale, the shares are credited in the same account. It serves as an online safe deposit box to your securities.
The key characteristics of a Demat account are:
Electronic securities storage in a safe way.
Risks that come with paper certificates are done away with.
Basic removal of shares in one of the accounts and transferring them to the other.
One-stop shop of all your holdings.
A demat account explained in simple terms, is an account that makes the investing process easier and safer against theft, loss, or even destruction of the hardcopy documents.
What Is a Trading Account?
A trading account is required for both selling and buying securities in the stock exchange. It is a connection between your Demat account and your bank account.
The stock exchange uses a trading account to do trades. When you make a buy order, your trading account buys the shares with the money in the bank account. The stocks are deposited in your Demat account. The opposite will occur when you sell shares in your trading account and the cash is sent back into your bank account.
Key features of a trading account include:
Allows buying and selling of securities.
Linked to the bank and Demat account.
Provides real-time market information and order execution.
Facilitates trading in equity, derivatives, and commodities, among others.
Understanding what is trading account helps investors recognize it as the primary tool for executing and managing transactions in the stock market.
Difference Between Demat and Trading Account
Despite the collaboration, there are distinct differences between a trading account and a Demat account.
Basis | Demat Account | Trading Account |
Purpose | Keeps its securities in electronic format | Facilitates the buying and selling of securities |
Function | Stores shares and investments. | Serves as a transaction platform to execute trades |
Nature | Similar to a digital locker | Similar to a current account that is used for transactions |
Process Involved | Securities are credited or debited | Money is debited or credited |
Regulated By | Depositories (NSDL/CDSL) | Stockbrokers and exchanges |
Examples of Use | Holding shares, bonds, ETFs, and mutual funds | Purchasing or selling stocks in the stock market. |
The difference between demat and trading account lies mainly in their functionality. The assets are stored in the Demat account, while the trading account enables you to transact in them.
How Do Demat and Trading Accounts Work Together?
The two accounts are connected to invest smoothly. When an investor buys shares:
The trading account is used to place the order.
The purchase price is subtracted from the linked bank account.
When a transaction is confirmed, the shares purchased are deposited into the Demat account.
When selling shares:
The shares will be debited from the Demat account.
The money raised from the sale is transferred to the linked bank account.
This flawless coordination guarantees quick and safe transactions across the stock market.
Why NRIs Need a Demat Account to Invest in India
For Non-Resident Indians (NRIs), opening a demat account trading account is mandatory to invest in Indian equities. The trading account enables buying and selling of shares, while the Demat account safely holds those securities in electronic form. Under the Portfolio Investment Scheme (PIS) route, NRIs are allowed to invest by having both accounts connected with an authorised bank.
Benefits for NRIs include:
Simplified digital management of Indian investments
Permission to trade directly on recognised Indian Stock Exchanges
Convenient repatriation of funds, depending on the type of account
Secure Monitoring of Investments from Anywhere in the World
Learn more about the step-by-step process of stock trading in India for NRIs.
Types of Demat Account
Demat accounts are available in various categories to satisfy the different categories of investors:
Demat Account on a regular basis: It is provided to Indian resident investors.
Repatriable Demat Account: NRIs who prefer to invest in a scheme which gives them the choice to invest in a foreign account.
Non-Repatriable Demat Account: NRIs are those residents who wish to invest in India, but without a repatriation option
Having knowledge of the types of Demat account would enable investors to decide on the appropriate one in regard to their residence and financial objectives.
Review whether to link a Demat to an NRE or NRO account.
Benefits of Having Both Accounts
Maintaining both accounts is essential for anyone planning to invest actively.
Advantages include:
Streamlined online trading experience
Secure and paperless record-keeping
Easy tracking of portfolio and performance
Efficient transfer and settlement process
Integration with multiple investment products, such as ETFs and bonds
By linking both accounts, investors can manage all aspects of their portfolio through a single interface, making investing simpler and more transparent.
How to Open a Demat and Trading Account
Opening both accounts today is a fully digital process. Most banks and brokers offer a 3-in-1 account that links your savings, demat, and trading accounts seamlessly.
Step-by-Step Process:
Step 1: Visit a broker or a bank which has been certified by SEBI and offers demat and trade services.
Step 2: Fill in the Internet account opening form with your base details.
Step 3: upload documents, such as PAN card, address proof, identity proof and bank details.
Step 4: Finalise the KYC process through a video call or face-to-face validation.
Having checked, will be provided with demat and trading account details.
Conclusion
The demat account and trading account are essential in both cases in order to operate in the contemporary markets. The trading account helps in transacting, but the Demat account is a secure place where the securities that you hold are stored. Understanding the difference between Demat and trading account will help investors run their investments effectively and prevent a misunderstanding in their trading.
Being aware of the working relationship between trading account vs Demat account would ensure easy buying, selling, and holding of the securities, while making sure you invest with confidence in the emerging capital markets of India.
Frequently Asked Questions
1. How is a Demat and a trading account different?
Demat is where a security is stored in electronic form, whereas a trading account is where a security is bought and sold in the stock market. There are two that are critical to smooth investing.
2. Is it possible to open a Demat account without a trading account?
Yes, it is possible to have a standalone Demat account to hold securities. But in order to actively buy and sell shares, you must also have a trading account to be associated with.
3. What are the various types of Demat accounts?
Demat accounts are of three kinds: Regular (residents), Repatriable (NRIs with fund transfer option) and Non-Repatriable (NRIs investing within India).
4. What are the functions of the Demat and trading accounts in a transaction?
When you purchase shares, the trading account does the trade and removes money from your bank account, with the purchased shares being added to your Demat account.
