EN
BTST stands for Buy Today, Sell Tomorrow. It is a short-term trading approach where shares are bought on one trading day and sold on the next, even before final delivery to the Demat account. Unlike intraday trading, positions are not squared off the same day. Traders use BTST to respond to short-term price movements, while being mindful of settlement rules and associated risks.
Key Takeaways
-
BTST involves buying shares on one trading day and selling them the next, before final delivery, if the broker allows it.
-
It sits between intraday and delivery trading and carries overnight price and settlement risks.
-
Traders often look at short-term price movement, liquidity, and market cues rather than long-term trends.
-
The execution of BTST transactions is dependent on broker support, appropriate margins, and current risk management rules.
What is BTST Trading?
Trades in the Indian equities market follow a T+1 settlement cycle. This implies that, according to SEBI regulations, shares acquired on one trading day are credited to the buyer's Demat account the following trading day. In regular delivery trading, selling usually happens after this credit. However, if a broker supports BTST trading, shares can be sold on the next trading day, even before final delivery.
BTST lies between intraday and cash market trades. In intraday trading, all positions must be squared off within the same trading session. In delivery trading, transactions are completed after shares are credited to the Demat account. BTST trading allows selling securities before delivery credit under the settlement cycle.
To use BTST trading, margin requirements depend on prevailing regulations and broker-specific risk policies. Since the position is carried overnight, traders remain exposed to market and settlement risks until the shares are sold on the next trading day.
Best BTST Strategies
Besides selecting stocks for BTST trades and following broader market developments, traders often observe price behaviour and technical indicators to understand short-term movement.
-
Picking BTST stocks
Stocks showing short-term momentum or increased activity are commonly observed for BTST trades. For instance, if XYZ's stocks were trading at ₹110 at 3 pm and surged to ₹115 at 3:15 pm, it indicates a possibility of a price breakout.
-
Common BTST trading strategies
Common BTST trading strategies focus on identifying short-term price movements expected in the next trading session. Traders usually observe price trends, trading volume, and key support or resistance levels to gauge possible momentum. These approaches aim to manage short-term opportunities while accounting for market and settlement risks.
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 the stop loss and target price. Stop loss is a price point at which 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 downwards. 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 a 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.
What Are the Steps to BTST Trade?
BTST trades follow a simple process, subject to broker support and settlement rules:
-
Select a stock expected to see a short-term price movement
-
Place a buy order during normal market hours
-
Hold the position overnight, accepting market and settlement risks
-
Place a sell order on the next trading day before delivery credit
Execution depends on margin norms, liquidity, and short-delivery risks.
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.
2. 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.
3. 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.
4. 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. 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 making the most of price movements.
3. 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 combined 40% 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 the stock delivery to the final buyer.
What Are the Risks Involved in BTST?
Risk in BTST 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 use BTST trading to respond to short-term price movements in the market. Having a clear understanding of how BTST works, along with its risks and settlement process, helps in making more informed trading decisions.
