We already know the theoretical difference between a Demat account and a Trading account. Demat account vs Trading Account
While a Demat account is used to hold securities electronically, a trading account is used for trading, buying and selling securities.
How do Trading and Demat accounts interact when buying shares?
Let us understand with an example to see what happens in your Trading and a Dematerialization account when you buy shares. Let’s say you placed an order to buy 1000 shares of company A at Rs. 500. Once the order is executed, your account will automatically be debited with Rs. 5,00,000. While you must ensure your trading account is pre-funded to place the order first. Per the latest T+1 trading settlement norms, your Dematerialization account will automatically be credited 1000 shares the next day. One of the biggest perks of having an account online is the seamless process.
How do Trading and Dematerialization accounts interact when selling shares?
Let’s say you punched an order to sell 500 shares of company A at Rs. 1000. Once the order is executed, the trading account will have to justify that the entire quantity of 1000 shares in your Dematerialization account hasn’t been sold. Then, 500 shares will be debited from your Dematerialization account under the same T+1 settlement protocol, and the amount will be credited into your trading account. You can either transfer the money from your trading account to your bank account or use it to reinvest in the market.
Can you sell shares on T+1 before being credited into your Demat account?
Suppose you bought 100 shares of “A” on Wednesday. Your Demat account will be credited with the same on Thursday. However, you witness a sharp positive movement on the same day and want to sell your shares. Can you? Well, the answer is yes. However, there are various terms etched into it. It is essential to take an intraday trade and not a delivery trade. Also, rules for short-selling differ from broker to broker. Hence, you must check with your broker if they allow short-selling and what the protocol is.
Demat account without a Trading account
For things like applying for an IPO, it is possible only to have a Demat account to hold the allotted shares. The point here is you can only hold these shares and not sell them. If and whenever you decide to sell the shares, you will be required to open a trading account for the same. You will only be able to sell the shares if your trading account is activated and linked to your Dematerialization account.
Trading account without a Demat account
You require a Demat account only if you are willing to hold or trade equity. If you are only willing to trade in Futures and Options, you can do without a Demat account. This is due to the cash-settlement protocol of Futures and Options. They do not result in delivery. A Dematerialization account with your trading account is a must if you are willing to deal in equities.
Takeaway!
A Dematerialization account and a trading account are beautifully intertwined. While they are functional without one another, it is always best to have both. Anyone in the country, who can fulfil the KYC procedure is eligible to open a Dematerialization account and begin their investment and trading journey.
