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 Rs 170 and sold them at Rs 180 on the next trading session, earning a profit of Rs 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.
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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.
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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.
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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.
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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.
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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.
What are the advantages of BTST trading?
- BTST allows you to magnify your profit when you expect the stock price to move upward.
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.
Disclaimer – This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.
