If you’re new to the market, you may have heard of BTST trading or “Buy Today, Sell Tomorrow,” and thought about what it means. BTST trading is a method that lets traders profit on price fluctuations in the short term by purchasing stocks today and selling them later in the day, even before stocks are officially transferred to their demat account.
In this piece, we’ll go into the details of what BTST trading actually is, how it operates with regards to its advantages and drawbacks and how it can be a viable strategy for investors who are looking to invest in short-term. If you’re just beginning to improve your skills in trading or just interested in BTST this guide will aid you in understanding what BTST is and how you can benefit from this method of trading.
What is BTST Trading?
Buy Today, Sell Tomorrow (BTST) is an option for traders to sell their stocks before they are officially settled into their demat accounts. This strategy has advantages over the traditional T+2 trading cycle, by increasing liquidity and reducing the possibility of losses. Investors can select eligible stocks from a selection offered by brokers and then sell them the following day, assuming that they have enough funds to pay for the transaction.
In India, the capital markets function on a T+1-based settlement cycle. If you purchase a stock on Monday, it will be credited to your Demat account on Tuesday. When you use BTST trades, you’ll be able to sell the shares on Tuesday before they are debited from your account. BTST trades capitalize on the short-term price fluctuations by allowing you to purchase the stock today and then sell it on the next day.
BTST is a middle ground between regular cash and intraday market trades. Contrary to intraday trading, when positions have to be shut by the close of the trading day, BTST allows you to hold stocks for a day to profit from price rises. In contrast to cash trading, in which you have to wait for shares to be delivered prior to selling them, BTST permits you to sell prior to delivery.
How Does a BTST Trade Work?
If you purchase shares through an equity delivery order they will appear in your demat account 2 days following the day of trading (T+2). The seller also receives their payment on the T+2. This means neither one is able to access the shares immediately.
BTST also known as Buy Today Sell Tomorrow, lets you sell shares prior to them being debited from your account at demat. After purchase, the shares are usually deposited with the Depository Participant 2 days after. With BTST you can also sell the shares prior to when this deposit takes place.
BTST operates on the ‘T+1’ settlement cycle. In this case, “T” is the day of the trade. This format offers a faster turnaround than the traditional T+2 format, and bridges the gap between trades in the cash market and intraday trades. With BTST you can benefit from price fluctuations within two days prior to when the shares are transferred to your demat account.
Example of a BTST Trade
After we’ve delved into the BTST meaning and meaning, let’s look at an example of the Buy Today Sell Tomorrow (BTST) trade:
Initial Investment You’ve got Rs. 15,000 on your account for trading.
Monday: The buyer buys 10 shares of ABC Ltd at Rs. 1,000 per share, which means you pay Rs. 10,000. This is a block on your account.
Tuesday: You can sell those 10 BTST stocks today from ABC Ltd at Rs. 1,100 per one, resulting in the amount of Rs. 11,000 on the sale.
How it works:
Monday: Rs. 10,000 is blocked to purchase ABC Ltd. shares. The shares are to be settled by the exchange and will be transferred into your demat account on Wednesday (T+2 days).
Tuesday: You can offer the same shares for sale at Rs. 1,100 each. Because the shares are scheduled to be delivered to your account in demat on Wednesday, you may sell them prior to when they arrive.
Wednesday: The shares are then delivered to the broker, who declares them settled.
The profit you earn from the BTST trade is calculated in the following manner:
Buy Value: Rs. 10,000
Sell Value: Rs. 11,000
Profit: Rs. 11,000 (sold Value) minus Rs. 10,000 (Buy Value) = Rs. 1,000
In this BTST example, you can earn the profit of 1,000 rupees. 1,000 in less than two days, by taking advantage of price fluctuations prior to when the shares are delivered to your account in demat.
Strategies to Consider for BTST Trading
Here are a few strategies to consider for BTST trading:
Price Breakouts on Candlestick Charts
Candlestick charts that show 15-minute intervals can help you identify the possibility of BTST stocks. These charts show the stocks’ highs, lows, and closing price. The most significant price movements occur during the trading session’s closing hours particularly after 2 pm, when the intraday trades are settled. A stock’s price that is higher than its resistance limit between 3:00 pm to 3:15 pm might indicate that the trend is upwards for the next day.
Setting Stop Losses
Stop loss levels may be utilized to sell the stock when the price falls below a certain level. This method helps to manage any potential losses in case the stock doesn’t perform in the manner expected on the following day.
Investing Before Major Events
Major events, like announcements by corporations or changes in economic policy, usually trigger significant price changes. In the event of a major event, entering BTST trades prior to such events can coincide with these expected price movements.
Selecting Liquid Stocks
Stocks that have high liquidity are typically the most preferred to use for BTST trading. liquid stocks such as index-based or large-cap stocks allow for easier selling and buying. The restriction of trades to a limited amount of highly liquid stocks could improve the management of BTST stocks to purchase tomorrow.
Booking Profits at Target Levels
Investors can set target and entry prices to better manage trades. Monitoring the performance of the stock and registering profits when it is at the target price helps to ensure gains and reduce the risk of losing money due to market reverses.
Risks of BTST Trading
BTST trading has numerous advantages, but it also has some significant risk. Here’s a summary of its main negatives:
Market Risk: BTST trading depends on price fluctuation, which means that traders have to take on a significant risk. Price swings that are sudden can result in losses, since the price spikes at the end of sessions might not continue for the next day. Furthermore, non-trading hours changes can have a dramatic impact on the position of BTST stocks for the coming day.
Margin Requirements: BTST trades are settled with cash and brokers don’t offer margin facilities as they do for intraday trading. From 2020 onwards, SEBI regulations require a 40% margin deposit prior to taking on BTST trades.
Short Delivery Risks: If the buyer does not deliver shares in time, you could be subject to an additional penalty. The amount of the penalty varies and is affected by price fluctuations and liquidity. You could pay an amount of 20 percent or as little as 1 percent of the price difference between the sale price and the price at auction.
Insufficient Margin Facilities: Unlike intraday trading, BTST does not provide margin options, which means that traders have to pay the entire costs of trading in cash.
Short Delivery Penalties: If you are a short-delivery customer shares, they are auctioned off by the exchange, and you could be penalized based on price fluctuation. The penalty can be as small as significant.
Frequently Asked Questions About BTST Trade
1. Which stocks do not qualify for BTST Trading?
Trade-to-trade stocks, as well as stocks under ASM or GSM, do not qualify for BTST trades.
2. What is the best time for BTST Trading?
Experts consider half to an hour before the market closes as an ideal time to buy BTST stocks. Selling it the next day at the earliest can also be beneficial.
3. Can I sell BTST stocks on the same day?
Investors can buy and sell stocks on the same day through intraday trading. BTST trading involves buying stocks one day and then selling them the next day.
4. Is BTST trading better than Intraday trading?
BTST (Buy Today, Sell Tomorrow) trading incurs lower transaction fees than typical buy-sell trades. Brokers often use up to 80% of selling profits for further trades on the same day. With BTST trading, investors gain an extra day to capitalise on market movements compared to intraday trading.
5. How much capital do I need to start BTST trading?
The capital needed for BTST trading depends on brokerage fees, margin requirements, and the investor’s personal risk tolerance.
6. What is the BTST full form?
The BTST full form in trading is ‘Buy Today, Sell Tomorrow’ It applies to the trading strategy where investors buy a stock one day and then sell the BTST stock for tomorrow on the next day.
