BTST Trading: Definition, Strategies, and Benefits

BTST trade means buy today, sell tomorrow. It is a trading strategy that can be highly profitable. Let’s find out its strategies and benefits!

If you actively participate in the share market, you must’ve heard about BTST. In case you are wondering, BTST means buy today, sell tomorrow. Unlike intraday, which involves buying and selling stocks during one trading session, BTST allows traders to take advantage of short-term volatility by buying today and selling on the next day. 

Let’s understand the BTST trade meaning with an example.

You bought 100 shares of XYZ at ₹170 and sold them at ₹180 on the next trading session, earning a profit of ₹1000 even before you received the delivery of stocks in your Demat.

What Do You Mean by BTST?

When you buy shares in the stock market, it takes T+1 day to reflect in your Demat account, meaning in regular trade, you can’t take advantage if the price rises the next day. But you can take advantage of an upward price change without receiving deliveries of stocks if your broker offers a BTST trading service.

 BTST lies between intraday and cash market trades. Intraday traders must square off all their positions before the trading session ends. But if you expect the price to increase, you might want to hold your position. 

In cash trading, traders can only transact after the shares are delivered to

their Demat account, subject to delivery received from the exchange. BTST trading was developed for the client to sell the securities even though the delivery of shares is not received from the exchanges in T+ 1 settlement. To get the benefit of BTST the client needs to ensure that the minimum margin of the 20% for buy and sell transactions needs to be fulfilled to avoid margin shortfall. There will be no exposure given for the BTST Trade. 

If the stock price appreciates during the next day’s trading, you can sell the stocks for profit in cash and carry a trading strategy.

Best BTST Strategies

Besides picking the stocks for BTST trade and following broader market news to guess price movement, individuals should know technical trading to make money. 

  • Picking BTST stocks

The best BTST stocks are the ones that are on the verge of breaking out in the upward direction. For instance, if XYZ’s stocks were trading at Rs. 110 at 3 pm and surged to Rs. 115 at 3:15 pm, it indicates a possibility of a price breakout. 

  • Common BTST trading strategies

Price breakouts in candlestick charts

The 15-minute candlestick trading chart showing the share’s highs, lows, closing, and opening prices is an excellent tool to identify BTST stocks.

The most price action happens during the last leg of the trading session after 2 pm when intraday traders start settling their trades. If a stock price moves above the resistance level between 3:00 pm and 3:15 pm, it indicates an upward trend for the next trading session subject to market risk.

  • Select liquid stocks

The moderate to high liquidity stocks are the best for BTST trading so that when you sell, you’ll find enough buyers for those. Traders usually select large-cap stocks that are part of the index for the BTST strategy.  

  • Invest before a significant event

Usually, a significant event about a company, sector or economy sways the stock’s price significantly. It can be company-related like bagging a new project or deal, merger and acquisition, buyback, dividend announcement, or economic policies like RBI policies and the like. Planning a BTST trade around a significant market event is an excellent short-term opportunity. 

  • Put stop-loss and target price 

Before executing a BTST trade, fix stop loss and target price. Stop loss is a price point where a sell order gets completed automatically. It helps cap your loss occurring from the trade if your predictions are wrong.

For example, you expect the stock price to rise in the next trading session. But instead, it moves downwars\d. A stop loss helps limit your losses in a scenario like this. It denotes a price point beyond which you don’t take losses.

Similarly, traders should book profit when the stock achieves the target price. Since the market is unpredictable, the trend can reverse, and the traders will lose all their gains. 

Things to Consider Before Using BTST Trading Strategy

Here are a few important things to keep in mind when using the BTST trading strategy:

  1. Analyse Candlestick Patterns:

Focus on spotting price breakouts in candlestick patterns. Look for price movements that break past previous resistance levels, signalling a possible trend reversal or continuation. This can help you time your BTST trades effectively by placing orders before potential price corrections.

  1. Use Stop-Loss to Manage Risk:

Just like with any trading strategy, BTST comes with risks. Setting a stop-loss order can help you limit potential losses by automatically selling your stock if it falls to a certain price level, ensuring you only lose what you’re comfortable with.

  1. Invest in Liquid Stocks:

Choose stocks with high trading volumes, as they are easier to sell in the next trading session. This liquidity ensures your trades are executed efficiently, allowing you to benefit from any short-term price increase.

  1. Stay Informed on Market Events:

Keep track of major events that might affect the stock market, like mergers, political changes, or economic reports. Understanding these events helps you predict price movements, allowing you to make more informed BTST trades.

What Are the Advantages of BTST Trading?

Here’s a look at the key benefits of BTST (Buy Today, Sell Tomorrow) trading:

  1. Quick Profits: BTST trading allows you to make fast gains by taking advantage of overnight price changes in a short time.
  2. Avoid Overnight Costs: Unlike other trading methods, BTST involves selling your shares the next day, helping you avoid the costs tied to holding stocks overnight.
  3. Benefit from Market Changes: BTST trading lets you capitalize on short-term market fluctuations. You stay flexible by not committing to long-term positions and instead make the most of price movements.
  4. Maximise Short-Term Gains:

BTST traders are skilled at adapting to market conditions quickly. They focus on maximising returns in the short term without the need for long-term commitments.

What Are the Disadvantages of BTST Trading?   

  • The price rise at the last moment of a trading session can result from the market’s knee-jerk reaction and may not be sustained in the next session.
  • BTST trading happens in the cash segment, so brokers don’t offer margin facilities to traders like intraday.
  • Since 2020, SEBI has changed the BTST rule. It requires traders to pay a 40 percent margin before executing a BTST trade.  
  • Short selling can result in a penalty if the seller fails to deliver the stocks on time. The exchange will auction the shares to transfer to you. Since the whole process increases the time for delivery, you will also face a penalty for missing stock delivery to the final buyer. 

What Are the Risks Involved in BTST?

The risk factor might not be significant, but it still exists. 

Risk arises from the chances of short selling if the seller fails to deliver the stocks to you on time. Since the rate for delivery failure is not fixed and determined by price movement, you will have to cover the difference between the selling price and the buying price of the stock exchange during the auction.

Final words 

Many traders do BTST trading successfully. It allows you to benefit from short-term price volatility. For that, it is best to understand the BTST meaning in advance. Enjoy a seamless BTST trading experience from Angel One’s trading platform. Open a Demat account with Angel One today.

FAQs

Is BTST better than intraday?

BTST and intraday trading serve different purposes. BTST allows you to benefit from overnight price movements without holding shares long-term, while intraday requires closing positions within the same day. Whether BTST is better depends on your trading goals and risk tolerance.

Can I convert BTST to delivery?

Yes, you can convert a BTST trade to delivery if your broker supports it. This means holding the stock beyond the next day instead of selling it. However, this may involve additional charges, so it’s important to check with your broker.

Is BTST trading safe?

BTST trading carries risks like any trading strategy. While it can be profitable by leveraging overnight price changes, it’s also exposed to market volatility and price gaps. Using tools like stop-loss orders can help manage these risks effectively.