What is BTST and How Does it Work? | My Espresso

BTST Trading: Everything You Need to Know

If you are a newbie to the world of stock trading, there are chances that you have repeatedly heard of BTST trades or the buy today, sell tomorrow facility. However, most new entrants struggle to understand the meaning of BTST transactions.

Published on 06 February 2023

BTST stocks or BTST trades allow a trader to take advantage of short-term volatility. In this type of trade, investors can buy today and sell tomorrow. In addition, they can sell the shares they have purchased even before the delivery to their Demat account. In other words, they can sell the shares before they are deposited in the Demat account.

This blog will help you understand everything about BTST in stock markets.

What do you mean by BTST?

After buying shares from the market, it takes t+2 days to show up in your Demat account. It means that you won’t be able to take any advantage if the price rises the next day. But according to BTST meaning, you are allowed to leverage an upward price change even if the stocks haven’t been delivered to you yet.

The buy today, sell tomorrow trade enables individuals to trade within two days of buying equities. While understanding “what is BTST trading,” it is crucial for you to understand that it lies between the cash market and intraday trades.

In cash trading, transactions are allowed only when the shares get delivered to the Demat account. It takes two days, and a massive change can take place in the stock within this time. BTST trading helps with eliminating this delay.

BTST Meaning and How Does BTST Work?

In an equity delivery order, it takes T + 2 days for the shares you buy to credit into your Demat account. T, here, refers to the day on which you trade the shares. The seller also receives the credit in his account in T + 2 days.

During this period, if the value of the shares purchased by you increases, you cannot sell the shares to book a profit since the order is normal. But, if you place a CNC or cash and carry order, you can sell the shares as soon as you see an appreciation in their value to book profits.

Best BTST Strategies

The best BTST stocks are the ones that have a tendency to break out in an upward direction. Apart from choosing the right stocks for BTST trading, individuals should also be aware of some BTST trading strategies, which are as follows:

●      Price Breakouts in Candlestick Charts

An excellent tool to identify BTST stocks is the 15-minute candlestick trading chart. It helps reveal the highs, lows, and opening and closing prices of stocks.

A majority of the price action takes place after 2 pm around the last leg of the trading session. It is the time around which intraday traders begin settling their trades.

When a stock price goes higher than the resistance level between 3 pm and 3:15 pm, it will show an upward trend during the upcoming trading session. These stocks are perfect for BTST trading.

●      Pick Liquid Stocks

Stocks with high to moderate liquidity are ideal for BTST trading. They ensure that you will find adequate buyers when you plan to sell these stocks. When it comes to BTST stocks, traders usually pick the ones with a high cap.

●      Always Invest Before Something Significant Happens

Any significant event in the economy, a company, or a particular sector can lead to changes in stock price. Sometimes the trigger is company-related, like a new product launch, a merger, or a buyback. At other times, it can be an economic policy like RBI guidelines. A BTST trade during a significant market event is outstanding for short-term gains.

●      Put Stop-Loss and Target Price

Before beginning a BTST trade, don’t forget to specify the target price and stop loss. Stop loss refers to the price at which a sell order gets fulfilled automatically. In case your predictions are wrong, the stop loss price will help you cap losses from the trade.

For instance, you anticipated that the stock price would increase in the next trading session. However, the stock price declined instead of going upward. A stop loss will restrict your losses in a similar situation.

In simple words, it is the price beyond which you won’t take any more losses. On the other hand, traders are able to book profits when a stock reaches the target price. Due to the unpredictability of the stock market, the trend can take place in reverse. In that case, traders end up losing their gains.

What are the Risks involved in BTST?

Once you understand “how does BTST work,” you should also know about the risk factors associated with it. While there isn’t any significant risk, you cannot call it completely risk-free.

There’s a risk of short selling if the seller can’t deliver the stocks on time. The rate for delivery failure isn’t fixed and depends on the price movement. Therefore, covering the difference between the selling price and the buying price is crucial during the auction.

Features of BTST Trades

  • The BTST facility allows you to sell stocks before they are credited into your Demat account. You can execute the sell order for up to two trading days after the buy order. The shares are credited to your account by the third day, after which you can create a regular sell order.
  • BTST trading facility is unique and offered by a few stockbrokers in India.
  • You can use the BTST facility only on scripts approved by the stockbroker. Therefore, ask your stockbroker to share the required details with you so that you only transact on approved BTST stocks.
  • Many brokers do not offer BTST trading for SME companies.
  • You cannot use the BTST facility for stocks in the T2T segment. It is because it is mandatory to take delivery of Trade to Trade Segment stocks.
  • There are no complex steps or special order types to complete BTST trades.

Advantages of BTST Trading

A trader can enjoy some benefits with BTST trades. These are:

  • With BTST transactions, one can make the most of short-term volatility in the stock market.
  • In BTST trades, you sell shares even before they are deposited with the DP. As a result, you do not have to pay any DP charges.
  • If you execute an intraday trade but do not expect any profit before market closing, you can convert the order into a BTST and choose to sell it the next day.

Disadvantages of BTST trading

BTST trades also carry some risks. Some of them are:

  • If your account does not have a sufficient balance, you will have to pay a margin penalty on BTST trades.
  • Several stockbrokers do not offer the service for BTST. Instead, they complete transactions under CNC. Consequently, you will have to pay CNC order charges, which are different from broker to broker.
  • If the seller defaults to deliver the shares on the settlement date and you fail to deliver the shares for your sell order, you will have to pay the penalty. Therefore, before you indulge in BTST transactions, ask your stockbroker about the penalties for short delivery.

BTST Charges

There are two ways in which BTST charges are calculated.

  • BTST brokerage charges on the Trading Day

If you buy and sell BTST stocks on the same trading day, it is recognised as an intraday trade. Therefore, your broker will levy the charges of intraday trading.

  • BTST brokerage charges on T+1 or T+2 Days

If you buy the shares on a particular trading day and sell them the next day or the day after, the broker levies equity delivery brokerage charges. However, some stockbrokers offer brokerage-free equity delivery, which means there is no need to pay any brokerage for BTST trading.

Please note a few stockbrokers in India charge different BTST brokerage fees based on your brokerage plan and when you sell the shares. So ask your stockbroker about these charges before proceeding with the purchase of BTST stocks.

Summing Up

BTST trading requires extensive practice and experience. You must devise a proper strategy before executing the trades to avoid any mistakes and protect yourself from incurring losses. However, most traders complete successful BTST trades regularly. They follow the practice of buying shares just before the market closes and selling them on the next day.

Chandresh Khona
Team Espresso

We care that you succeed

Bringing readers the latest happenings from the world of Trading and Investments specifically and Finance in general.