What Is a Demat Account and How Is It Different from a Trading Account?
Published 2026-10-16 · Aadarna Stock Broking Pvt. Ltd.
Key takeaways
- A demat account holds your securities in electronic form; a trading account is used to buy and sell them.
- Your demat account is maintained with a Depository Participant on CDSL or NSDL, which keep the official record of what you own.
- Most investors open both together, because buying shares needs a trading account and holding them needs a demat account.
- An Authorised Person helps you open and use these accounts but never holds your money or shares.
If you are starting out in the stock market, you will hear two terms again and again: demat account and trading account. They sound similar, and most brokers open them together, but they do different jobs. Understanding the difference helps you know where your shares actually are and who is responsible for what.
This guide explains both accounts, the institutions behind them, and what happens step by step when you buy or sell a share.
What is a demat account?
Demat is short for dematerialised. Shares used to be paper certificates. Today they exist only as electronic records, and a demat account is where those records are kept in your name.
A demat account can hold shares, exchange-traded funds (ETFs), bonds, government securities and mutual fund units held in demat form. Think of it as a locker for securities rather than a bank account for money.
Your demat account is opened through a Depository Participant (DP), which can be a stock broker or a bank. The DP is an agent of one of India's two depositories, CDSL or NSDL. The depository keeps the master record of your holdings and sends you statements directly, so you can always cross-check what your DP shows you.
What is a trading account?
A trading account is the account with your stock broker that lets you place buy and sell orders on a stock exchange such as NSE or BSE. When you place an order in your broker's app, it goes through your trading account to the exchange.
The trading account also tracks the money you have added for trading, your open orders and your positions in segments such as futures and options or commodities, if you have activated them.
How the two work together
- You add money to your trading account through your broker's official app or website.
- You place a buy order. The exchange matches it with a seller.
- On settlement, the shares are credited to your demat account and the money is debited from your trading balance.
- When you sell, the shares are debited from your demat account and the sale proceeds are credited to your trading balance after settlement.
- You can withdraw money from your trading balance to your linked bank account.
In short: the trading account is where the transaction happens; the demat account is where the securities live.
Do you need both?
To buy and hold shares, yes. You need a trading account to buy and a demat account to receive and keep the shares. That is why brokers usually open them as one combined process with a single KYC.
Some situations need only a demat account. For example, if you receive shares through a bonus, a gift or an inheritance, or hold units of mutual funds in demat form, they sit in your demat account even if you never trade.
Where does an Authorised Person fit in?
An Authorised Person (AP) is appointed by a SEBI-registered stock broker and approved by the stock exchanges to help clients open and service accounts. Aadarna Stock Broking Pvt. Ltd. is an AP of Angel One Ltd.
Your trading and demat accounts are opened with Angel One Ltd. as broker and Depository Participant. An AP helps you with the paperwork, app usage and service requests, but it cannot accept your money or securities. All money must move only through the broker's official channels to the broker's designated bank accounts.
Keeping your accounts safe
- Make sure your own mobile number and email are registered, so you get transaction alerts directly from the exchange and depository.
- Never share your login password, OTP or TPIN with anyone, including people claiming to be from your broker.
- Add a nominee, so your family can claim your holdings easily if something happens to you.
- Check the statements you receive from CDSL or NSDL against what your app shows.
Frequently asked questions
Can I have more than one demat account?
Yes. You can hold demat accounts with different Depository Participants, all linked to the same PAN. Each must be maintained, and charges apply as per each provider's tariff, so many investors keep just one or two.
Is my money kept in my demat account?
No. A demat account holds securities, not money. Money for trading sits with your broker as a trading balance, and the rest stays in your own bank account.
What happens to my shares if my broker closes?
Shares in your demat account are recorded in your name with the depository, separate from the broker's own assets. You can transfer them to a demat account with another Depository Participant.
Sources
- SEBI investor website – securities market investing
- CDSL – depository website
- NSDL – depository website
Risk disclosures on derivatives
- 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
- On an average, loss makers registered net trading loss close to ₹50,000.
- Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
- Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Source: SEBI study dated January 25, 2023 on "Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment", wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.