While a trading account and a demat account are often opened together, especially by brokers offering a 2-in-1 account, they serve distinct functions in the world of stock market investing. Here’s how they differ:
1. Function
Feature | Trading Account | Demat Account |
|---|---|---|
Purpose | Used to buy and sell securities in the market | Used to hold securities in electronic format |
Nature | A transactional platform | A storage facility |
Involves | Executing trades – buying/selling of shares, F&O, etc. | Holding of shares, ETFs, mutual funds, bonds, etc. |
2. Stock vs. Flow
Trading Account = Flow
Records your buy/sell transactions (i.e., the flow of securities).
For example, intraday trades take place in the trading account and are squared off the same day – no impact on the demat account.
Demat Account = Stock
Reflects the ownership of securities.
When you hold shares beyond the trading day, the net holdings are stored in your demat account.
3. Role in Different Instruments
Instrument | Trading Account | Demat Account |
|---|---|---|
Equity Delivery Trades | Required | Required |
Intraday Equity Trading | Required | Not Required |
Futures & Options (F&O) | Required | Not Required |
Currency Derivatives | Required | Not Required |
IPO Investment | Not Required to Apply | Required to Receive Shares |
4. How They Work Together
The trading account, demat account, and bank account form a seamless loop:
Buy Shares:
Trading account places the order.
Bank account debits the funds.
Shares are credited to the demat account on T+2 day.
Sell Shares:
Trading account initiates the sale.
Demat account debits the shares.
Proceeds are credited to the bank account on T+2 day.
5. IPO Scenario
- Demat Account is essential for receiving IPO shares.
- Trading Account is not required to apply for the IPO, but is required to sell those shares later on.
6. Can You Have One Without the Other?
Scenario |
Is It Possible? |
|---|---|
Trading account without a demat account |
Yes, but only for F&O or currency trades |
Demat account without a trading account |
Yes, but only for holding, not selling |
Intraday equity trading without demat |
No, you still need a demat account linked |
7. Eligibility to Open
Anyone who can enter into a contract under the Indian Contracts Act can open both accounts.
Basic KYC documentation is mandatory.
For trading in Futures & Options, brokers typically require:
Income proof (Bank statements, ITR, salary slips, etc.)
Summary Table
Criteria |
Trading Account |
Demat Account |
|---|---|---|
Purpose |
To buy/sell securities |
To hold securities electronically |
Required for IPO application |
No |
Yes |
Required for equity trading |
Yes |
Yes (even for intraday) |
Required for F&O/currency trades |
Yes |
No |
Ownership reflected |
No |
Yes |
Linked to |
Bank and Demat account |
Trading account |
