Trading account vs Demat account

What You Need To Know About Trading And Demat Accounts


In the beginning, the trading of shares on the Stock Market was conducted through the open outcry system, which is where brokers would go about shouting their trades. However, the system was changed into an electronic one so that traders do not have to keep making trades physically but rather via computers. This gave rise to the trading account and later on, the dematerialized (Demat) account.

What is a trading account?

Before we can explore the trading account vs Demat account relationship, first we have to understand the meaning of each and how they work. A trading account works in much the same way as a normal bank account. Contrary to popular belief, a trading account does not only hold shares but also other investments such as foreign cash and securities. The trading account is linked to a financial institution and as the account holder, you have the option of employing an investment dealer who then monitors your trades and implements necessary trading strategies. Any loss or profit in your trades is, therefore, charged to your trading account. This trading account meaning is not as exhaustive and does not really go into depth. That is why before you open a trading account, you have to research in depth, the trading account definition that covers everything exhaustively.

Benefit of a trading account

The major benefit of a trading account is that it allows you to monitor your trades, profits, and losses more successfully. By tracking the account, you can calculate the gross profit or loss earned on trades. You can then extrapolate that, calculate the efficiency of the trades, and adjust the trading strategy accordingly.

Disadvantage of a trading account

The greatest disadvantage of a trading account is the fact that it is very easy to get blindsided. Since you have the ability to monitor things on an up close level, you almost feel invulnerable to loss, which is how most people end up losing their trades.

Considerations when looking for the best trading account

  • Financial institution

When opening a trading account, you have to consider the financial institution since that will define the charges and flexibility allowed for the trading account. Zerodha offers one of the best trading accounts in India. For starters, you have multiple account options to choose from depending on whether you are into equity or currency trading. When compared to other institutions, Zerodha trading accounts are the most secure low brokerage trading accounts available with very low charges on the account.

  • Electronic monitoring

You have to be able to control or monitor your account electronically at your own comfort and discretion. With a Zerodha trading account, you can monitor and even trade comfortably and remotely since the account is linked to a software based platform. You have a web platform and a mobile-based platform to choose from in your operations.

  • Transaction time

After trading, there has to be an amount of time that passes before you can realize any change in the trading account. When looking for the best trading account, you have to consider the wait time for the changes to reflect in your account. Zerodha trading accounts have a one day waiting time. Therefore, your transactions are reflected a day after your day of trading (T + 1)

What is a Demat account?

A dematerialized or Demat account is an account available in India that allows for simplicity in trading. In most cases, while trading through other accounts such as in the case of a trading account, there have to be physical exchanges for instance of the certificates. However, a Demat account allows you to trade electronically. All the securities and shares are held in electronic form thereby allowing trade to take place without the need for the physical aspects of the trade. In essence, therefore, the Demat account acts as some form of bank. Let us consider a Demat and trading account together for a better understanding. With a trading account, you buy or sell your orders on the Stock Market. However, the investments are still held by the financial institutions until such a time that the trades are completed. With the Demat account, all the investments are held electronically and you can control them from there, much like the financial institution does for the trading account. Therefore, even though the Demat account has to be linked to a bank or other financial institution, the transactions made on the account are completed immediately.

Advantages of a Demat account

  • Convenience

There is a greater convenience in using a Demat account as compared to a trading account. All transactions are electronic and immediate. That means that you can control and monitor your account remotely and with the changes being reflected almost as soon as you finish your transaction. More so, there is less paperwork and loopholes to go through such as stamp duties.

  • Affordability

A Demat account has cheaper transaction costs and charges as compared to trading accounts. The opening cost for a Zerodha trading account is between Rs. 200 and Rs. 300 while those of a Demat account are at a constant Rs. 100.

  • Security

Since there are no physical securities held in a Demat account, it is far more secure than a trading account from instances of theft.

  • Fast transaction

The transactions on a Demat account are immediate, which means that there is no wait time or other time-lapses to consider. This is great in cases where you are hard pressed for time or where time is a huge factor.

Disadvantages of a Demat account

  • Difficulty in regulation

There are various steps taken in ensuring that the securities are dematerialized and the process can be tasking and scary to investors. More so, when it comes to the markets, the stock brokers and other relevant players can easily manipulate the markets in their favor. Due to such instances of manipulation, there has to be close monitoring of the trades done through Demat markets to protect the investors, which as you can imagine is no easy task.

  • Complexity inclosure

You cannot close a Demat account in as long as it has dematerialized investments within. You, therefore, keep incurring costs that you could avoid if you just closed the account and liquidated your investments.

Trading account vs Demat account

At the end of the day, when you consider the question on which of these accounts is the better option, it all boils down to convenience, preference, and cost. Both Demat and trading accounts are excellent options but when you have to choose, pick the one that offers the most convenience. For instance, if almost all your trades are dependent on a fast transaction, then the Demat account is a better option for you than the trading account. Either way, Zerodha offers the best Demat and trading accounts in terms of convenience, automation, costs, operation and so on. On the other hand, a free trading account or low brokerage trading account might offer greater benefits in terms of cost that a Demat account.

Quick review of Zerodha

Zerodha is an excellent Indian-based discount broker that has gained fame and recognition as being one of the best in the industry. The thing that sets them apart from most other discount brokers is the availability of strong features for trading. For instance, there are plenty of unique trading tools designed for use by Zerodha. These allow for greater monitoring of trades and increase a client’s trading efficiency. More so, there automated systems are brilliant and their customer support is exemplary. The fees are also comparatively affordable, which really sets them apart from the competition. There are three types of accounts, the trading, Demat and commodity accounts and each comes with its own set of advantages. There is also an option to open two of the accounts in one.


When it comes to choosing the best Demat and trading account to make sure that you choose Zerodha. That having been said, if you are undecided about which of the two is the best option for your trading, make sure that you consult Zerodha to hear their options on all accounts, such as the charges, the offers and such.