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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.
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.
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.
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:
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.
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.
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.
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.
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.
A trader can enjoy some benefits with BTST trades. These are:
BTST trades also carry some risks. Some of them are:
There are two ways in which BTST charges are calculated.
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.
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.
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.
We care that you succeed
Bringing readers the latest happenings from the world of Trading and Investments specifically and Finance in general.