What is the BTST Strategy? Learn How BTST Trading Works
If you’re new to the stock markets, you might have heard the term BTST trading, or “Buy Today, Sell Tomorrow,” and wondered what it means. BTST trade is a strategy that allows traders to capitalise on short-term price movements by buying stocks today and selling them the next day, even before the stocks are officially delivered to their demat account.
In this article, we’ll dive into what BTST trading is, how it works, its benefits and limitations, and why it might be a valuable strategy for short-term investors. Whether you’re a novice looking to enhance your trading skills or simply curious about BTST, this guide will help you understand what BTST means and how to make the most of this trading approach.
What is BTST Trading?
Buy Today Sell Tomorrow (BTST) is a trading strategy allowing traders to sell stocks before they are officially settled in their demat account. This method offers advantages over the standard T+2 trading cycle by improving liquidity and reducing potential losses. Traders can select eligible stocks from a list provided by brokers and sell them the next day, assuming they maintain sufficient funds to cover the transaction.
In India, the capital markets operate on a T+1 settlement cycle. If you buy a stock on Monday, it will be delivered to your demat account by Tuesday. With BTST trades, you can sell these shares on Tuesday before they are credited to your account. BTST trades exploit short-term price movements by allowing you to buy a stock today and sell it the next day.
BTST sits between intraday and regular cash market trades. Unlike intraday trading, where positions must be closed by the end of the trading day, BTST allows you to hold onto stocks for one more day to capitalise on price increases. Unlike cash trading, where you must wait for shares to be delivered before selling, BTST lets you sell before delivery.
How Does a BTST Trade Work?
When you buy shares via an equity delivery order, they appear in your demat account two days after the trading day (T+2). Similarly, the seller receives their payment on T+2. This delay means neither party has immediate access to the shares.
BTST, or Buy Today Sell Tomorrow, allows you to sell shares before they are credited to your demat account. After purchasing, the shares are typically deposited with your Depository Participant two days later. With BTST, you can sell these shares before this deposit occurs.
BTST operates on a ‘T+1’ settlement cycle. Here, “T” is the day of the trade. This cycle offers a quicker turnaround than the standard T+2 format, bridging the gap between cash market trades and intraday trades. With BTST, you can benefit from price changes within the two days before the shares are officially delivered to your demat account.
Example of a BTST Trade
Now that we have explored the BTST meaning, let’s break down a simple example of a Buy Today Sell Tomorrow (BTST) trade:
- Initial Investment: You have Rs. 15,000 in your trading account.
- Monday: You buy 10 shares of ABC Ltd at Rs. 1,000 each, so you spend Rs. 10,000. This amount is blocked in your account.
- Tuesday: You sell those 10 BTST stocks for today of ABC Ltd at Rs. 1,100 each, making Rs. 11,000 from the sale.
Here’s how it works:
- Monday: Rs. 10,000 is blocked for purchasing ABC Ltd shares. The shares will be settled with the exchange and are due to be delivered to your demat account on Wednesday (T+2 days).
- Tuesday: You sell the same shares at Rs. 1,100 each. Since the shares are expected to be delivered to your demat account by Wednesday, you can sell them before they actually arrive.
- Wednesday: The shares are delivered to your broker, who then marks them as settled.
Your profit from the BTST trade is calculated as follows:
- Buy Value: Rs. 10,000
- Sell Value: Rs. 11,000
- Profit: Rs. 11,000 (Sell Value) – Rs. 10,000 (Buy Value) = Rs. 1,000
In this BTST example, you make a profit of Rs. 1,000 within just two days by taking advantage of price changes before the shares are physically delivered to your demat account.
Strategies to Consider for BTST Trading
Here are a few strategies to consider for BTST trading:
Price Breakouts on Candlestick Charts
Candlestick charts displaying 15-minute intervals can help identify potential BTST stocks. These charts illustrate the stock’s highs, lows, and closing prices. Significant price movements often occur late in the trading session, especially after 2 pm when intraday positions are settled. A stock price rising above its resistance level between 3:00 pm and 3:15 pm may suggest an upward trend for the following day.
Setting Stop Losses
Stop loss levels can be used to automatically sell a stock if its price drops below a specific point. This mechanism helps manage potential losses if the stock does not perform as anticipated on the following day.
Investing Before Major Events
Major events, such as corporate announcements or changes in economic policy, often cause substantial price fluctuations. Entering BTST trades before such events can align with these anticipated price movements.
Selecting Liquid Stocks
Stocks with high liquidity are often preferred for BTST trading. Liquid stocks, such as large-cap or index-based stocks, facilitate easier buying and selling. Limiting trades to a small number of highly liquid stocks can enhance the manageability of the BTST stocks to buy tomorrow.
Booking Profits at Target Levels
Investors can set entry and target prices to manage trades more efficiently. Monitoring the stock’s performance and booking profits when it reaches the target level helps secure gains and mitigate the risk of losses from market reversals.
Risks of BTST Trading
BTST trading offers several advantages but also comes with notable risks. Here’s an overview of its key drawbacks:
- Market Risk: BTST trading relies on price fluctuations, which means traders face significant risk. Sudden price swings can lead to losses, as end-of-session price surges may not continue the next day. Additionally, non-trading hour changes can unexpectedly impact the positions of the BTST stocks for tomorrow.
- Margin Requirements: BTST trades are settled in cash, and brokers do not provide margin facilities like in intraday trading. Since 2020, SEBI regulations require a 40% margin deposit before executing BTST trades.
- Short Delivery Risks: If the seller fails to deliver shares on time, you may face a penalty. This penalty varies and is influenced by price movements and liquidity. You could end up paying a penalty of up to 20% or as low as 1-2% of the share price difference between your sale and the auction price.
- Lack of Margin Facilities: Unlike intraday trading, BTST does not offer margin options, so traders must cover the full cost of trades in cash.
- Short Delivery Penalties: In case of short delivery, the shares are auctioned by the exchange, and you may incur a penalty based on price fluctuations. This penalty could range from minimal to significant.
Benefits of Participating in BTST Trading
BTST (Buy Today, Sell Tomorrow) trading presents several key benefits:
- Quick Profits: This strategy allows traders to capitalise on short-term price movements, potentially earning profits within a single day.
- Lower Costs: By selling the position the next day, BTST trading helps avoid overnight holding costs and eliminates Demat Debit Transaction Fees since shares are not held in a demat account overnight.
- Flexibility: Traders can take advantage of market fluctuations without committing to long-term positions, making responding to short-term price changes easier.
- Extended Opportunity: BTST provides an extra day compared to intraday trading to capitalise on price movements, offering more time for trades to perform.
- Reduced Transaction Fees: Transaction costs for BTST trading are often lower compared to traditional buy-sell trades, and some brokers allow using a significant portion of the profits for further trades on the same day.
Difference Between BTST Trading and Intraday Trading
| Aspect | BTST Trading | Intraday Trading |
| Definition | In BTST trading, you buy shares today and sell them the next day. | In intraday trading, you buy and sell shares on the same day. |
| Holding Period | Shares are held overnight in BTST trading. | Shares are not held overnight in intraday trading. |
| Risk | BTST trading generally involves comparatively lower risk. | Intraday trading carries higher risk due to volatile market conditions. |
| Margin | Margin is required for BTST trading, but the amount is typically less than that required for intraday trading. | Margin is required for intraday trading. |
| Settlement | BTST trades are settled in T+1, which means one day after the transaction. | Intraday trades are settled in T+2, meaning two days after the transaction. |
Common Misconceptions Surrounding BTST Trade
Here are a few common misconceptions associated to BTST trading:
- A common myth about BTST (Buy Today, Sell Tomorrow) trading is that it offers a quick path to wealth. BTST trading is not a get-rich-quick scheme. It requires careful research, disciplined execution, and solid risk management to achieve consistent success in the stock market.
- Another misconception involves the execution of BTST trades. Like many trading strategies, BTST is subjective, and traders often implement it differently. BTST traders can be prepared for varying approaches and consider adapting strategies from experienced traders to fit their situations.
Misunderstandings about BTST often arise from a lack of knowledge. Educating yourself about its mechanics and principles can help clear up these myths.
Resources and Tools for BTST Trades
Trading Platforms
For BTST trading, user-friendly platforms with advanced features are essential. Investors can choose platforms that offer real-time data, customisable charting tools, and efficient order execution to support smooth trading.
Analytical Tools
Analytical tools are crucial for BTST trading. Charting software allows 15-minute intraday charts, essential for tracking short-term price movements. Trend analysis tools help determine the direction of price changes, while volatility indicators like Average True Range and Bollinger Bands assess the level of price volatility.
Educational Resources
Investors can expand their BTST trading skills through educational resources. Online courses, webinars, and tutorials provide valuable insights into fundamental concepts and advanced strategies, building a solid foundation for effective trading.
Factors to Consider When Participating in BTST Trading
Here are key factors to remember when using the BTST trading strategy:
- Stay Informed About Market Events: It can be beneficial to keep up with significant events that could impact stock prices, such as mergers, political changes, unexpected earnings, and interest rate adjustments. This knowledge helps predict price movements and make informed BTST trades.
- Implement Stop-Loss Orders: To manage risk, traders can set a stop-loss order to limit potential losses. This order automatically exits the market when a predetermined loss level is reached, protecting traders from excessive losses.
- Consider Liquid Stocks: Investors can consider BTST stocks to trade tomorrow with high trading volumes, indicating strong market demand and easy execution. Liquid stocks are easier to buy and sell, which is essential for effective BTST trading.
- Consider Stocks with Potential for Price Breakouts: Traders can identify stocks that show signs of upward movement. For example, if a stock moves from Rs. 110 to Rs. 115 in a short period, it may indicate a potential breakout.
- Focus on Emerging Trends: Traders can find it beneficial to stay updated on technological advancements, regulatory changes, and market trends that could influence BTST trading strategies.
To Wrap It Up…
BTST trading involves buying shares at the end of one trading day and selling them the next, capitalising on short-term price movements. This strategy can be highly rewarding but also carries its risks. Understanding the fundamentals of BTST trading is crucial for success. Understanding the fundamentals of BTST trading is essential for making informed decisions. As with any trading strategy, having a strong grasp of the core concepts can help in navigating the market effectively. By starting with smaller trades and gradually gaining experience, traders can enhance their skills and adapt their strategies over time.
Frequently Asked Questions About BTST Trade
Trade-to-trade stocks, as well as stocks under ASM or GSM, do not qualify for BTST trades.
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.
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.
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.
The capital needed for BTST trading depends on brokerage fees, margin requirements, and the investor’s personal risk tolerance.
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.
