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

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