Differences in Demat and Trading Accounts (stock vs. flow)

The primary distinction is that a Trading account records your capital market transactions over time, while a Demat account records your stock and other securities holdings at a certain point in time. As a result, a Trading account is characterized by a continuous flow of transactions, while a Demat account captures your wealth effect at a single point in time.

Trading is measured over some time, whereas Demat measures at a given point in time.

It is logically related to the previous point. It's the primary distinction between a Trading Account and a Demat account. The trading account is measured over time, capturing transactions over time (1 month, 3 months, 1 year, etc.). A demat account, which serves as a record of stock ownership, is often measured at a certain point in time (generally as on 31st of March of each financial year).

When you buy stocks, how do your trading and demat accounts interact?

Let's take a look at what happens when you place a purchase to understand better what a Trading and Demat account is.

Let's say you place an order for 100 shares of X Company at Rs. 910, it's authenticated. Then, by 11 a.m. the next day, you must pre-fund your trading account to the tune of Rs. 91,000. The shares automatically credit to your Demat account on T+2 day. This whole process is entirely seamless if you are an online trader.

When you sell shares, how do your Trading and Demat accounts interact?

Assume you sold 500 shares of Stock 'X' at Rs.420 each. The trading engine must first verify that you have a sufficient number of shares in your Demat account. The 500 shares will debit from your Demat account on T+1 day, and the amount of Rs 2,10,000 lakhs will be credited to your bank account on T+2 day once you have the desired balance in your Demat account. If you have an offline account, you must give your broker the Debit Instruction Slip (DIS) the same day; if you have an online Demat account and have granted your broker Power of Attorney, you can fix this issue. In that case, everything goes smoothly.

Is it possible to sell shares on T+1 before they arrive in your Demat account?

It is a fascinating query. Assume you bought shares of "X" on Monday. Only on Wednesday evening can you get your Demat credit. That means you'll be able to sell it on Thursday. What if the price has jumped 10% since Wednesday morning? Is it possible to sell it until it reaches your Demat account? Yes, that is correct. Before the shares arrive in your Demat account, the broker would advise you to sell them. However, due to quick delivery, there is a chance that you will not get your package on T+2 day. In that regard, your shares will be auctioned and will only be available in your Demat account on T+3 day. That means your stock sale will go south. When you sell shares that have not yet arrived in your Demat account, you take this risk.Is it possible to have a Demat account without having a Trading account?

Yes, that is entirely feasible. You only need a Demat account to hold the stock on allotment if you apply for an IPO. If you only plan on holding these shares and not selling them, a Demat account will suffice. However, if you want to sell your shares, you'll need to create a Trading account. Only after your Trading account has been activated and your Demat account has connected to this Trading account will you be able to sell these shares.

Is it possible for me to have a Trading account without a Demat account?

If you want to take shares in demat form, you'll need a demat account. So, if you've opened a brokerage account and plan to trade futures and options, you won't need a Demat account. Because futures and options in India are settled in cash and do not result in delivery, this is the case. However, if you plan to trade stocks, you'll need a Demat account. Is it possible to avoid opening a demat account if you only plan to trade stocks intraday? No, it's not true! SEBI rules require that you open a Demat account in addition to your Trading account if you plan to trade inequities.

Keep in mind that not every trade account transaction delivered to your Demat account. Intraday equity, futures, option, and currency trading, for example, are done in your Trading account but do not affect your Demat account. You can also directly buy IPOs, RBI bonds, and Gold Bonds into your Demat account with no Demat-Trading Interaction.

Account charges for Demat and Trading

The Depository Participant with whom you opened your Demat account charges an annual maintenance charge. An investor may legally have multiple Demat and Trading accounts using a single PAN since the number of PAN accounts is unlimited. As a result, you may require to pay the AMC (Annual Maintenance Charge) to each DP where you have a Demat account.

Besides, that the investor charges transaction and custodian fees.