Let's start with btst meaning. In BTST trading, individuals sell assets the next day after buying them. In a conventional trade, it takes t+2 days for stock market purchases to appear in your demat account. So, you cannot profit if the price increases the next day. However, if your broker provides a BTST trading service, you might benefit from an increase in price without getting stock delivery. After acquiring the stocks, traders have two days to complete a BTST transaction. BTST is somewhere between intraday and cash market trading. Before the trading day is over, intraday traders must close out all of their positions.
Trading in cash is only possible once the shares get credited to the Demat. It typically takes two days. A lot may occur in the stock market in just two days. BTST trading was introduced as a workaround for the t+2 delivery format's delay. The aim was to give traders a middle ground. You can sell the stocks for a profit in cash and use a trading method if the stock price increases during the next day's trading.
Do not confuse BTST trading with intraday trading. BTST trading entails buying stocks today and selling them tomorrow. In contrast, intraday trading involves buying and selling shares on the same day.
Let’s look at an example to understand BTST trading better.
Let's say a customer has Rs. 10,000 in his demat account.
Through his online trading account, he purchased five shares of HCL on Monday for Rs. 2000 each.
The same 5 HCL shares were sold for a price of Rs. 2100 per share on Tuesday.
On Monday, Rs.10,000 gets automatically blocked in the demat account for the purchase of HCL shares (Buy Value = Rs.10,000; Sell Value = Rs.10,500). The settlement for this transaction takes place with the exchange on Tuesday (T+1 day).
The customer sells the shares scheduled for delivery on Wednesday or Tuesday. The delivery of HCL shares is anticipated on Tuesday. So, the customer is permitted to sell the shares. Once the stockbroker receives the shares on Tuesday, it adds them to the client's upcoming obligation to deliver the shares. The sale gets finalised on Wednesday.
The following are some of the key advantages of the buy today, sell tomorrow strategy.
It enables you to profit from the short-term volatility or rise/fall in stock prices.
Since shares do not get credited to your demat account, BTST trades are exempt from Demat Debit Transaction Fees. The best trading account of reputed financial houses like Kotak Securities follow this practice in letter and spirit. So, traders need not to worry about hefty charges.
If you discover intraday trading to be unprofitable, BTST will offer your transactions an additional two days to perform better.
Here are a few downsides of BTST trading:
Unlike intraday trading, The majority of stock brokers do not provide margin to the BTST service with their trading account. The orders are cash & carry. Therefore, the individual must pay the entire cost of a trade.
Short delivery is another danger associated with BTST. Assume that you buy 200 shares of BTST today and sell them the next day. What if the trader who sold you the shares failed to deliver them? He will undoubtedly suffer from the transaction. The shares will be put up for auction by the exchange, and a penalty of up to 20% of the share price will be assessed. Your shares will be credited the next day, or T+3.
The price increase at the very end of a trading session may be the consequence of the market's automatic response and may not continue into the following session.
SEBI modified the BTST regulation in 2020. Before initiating a BTST deal, traders must pay a 40% margin.
Stocks in BTST calls are bought either based on a fundamental or technical analysis, or on the basis of the investor's confidence. Furthermore, it is important to distinguish between BTST and intraday trading. In intraday trading, the purchase and sale of assets take place on the same day. While in BTST, you buy the stock today and sell it the next day. Here's a snapshot of the differences between BTST and intraday trading.
Buying shares today and selling them the next day.
Buying and selling shares on the same day.
Shares are held overnight.
Shares are not held overnight.
Comparatively lower risk
Higher risk due to volatile market conditions.
Required, but the amount is less than intraday trading
Margin is required
Settled in T+1
Settled in T+2 days.
|Feature||BTST Trading||Intraday Trading|
|Definition||Buying shares today and selling them the next day.||Buying and selling shares on the same day.|
|Holding period||Shares are held overnight.||Shares are not held overnight.|
|Risk||Comparatively lower risk||Higher risk due to volatile market conditions.|
|Margin||Required, but the amount is less than intraday trading||Margin is required|
|Settlement||Settled in T+1||Settled in T+2 days.|
The finest BTST stocks are those that are just about to make an upward breakout. For instance, the probability of a price breakthrough is indicated if XYZ's stocks were trading at Rs 110 at 3 p.m. and then shot up to Rs 115 at 3:15 pm. In this situation, traders may want to use the BTST trading method for the following day's trading session when the price rises.
In addition to choosing the stocks for their BTST transaction, individuals should be familiar with technical trading and monitoring market news to predict price movements. The following are some of the best BTST trading strategies you should implement.
1. Price Breakouts in Candlestick Charts
The 15-minute candlestick trading chart is a good resource for identifying BTST stocks. It displays the share's highs, lows, closing and opening prices. After 2 pm, when intraday traders start closing down their positions, the concluding leg of the trading session sees the highest price movement. Between 3:00 and 3:15 pm, if a stock price rises over the resistance level, it signals an upward trend for the next trading day. The equities may be kept for BTST trading.
2. Have a Stop Loss in Place
Although the BTST technique might provide appealing profits, traders should exercise caution when using it. It is recommended to have a stop loss in place. You should establish a limit at which you will sell the share in order to prevent further losses in the event that the price of your stock drops the following day.
3. Investing Before a Major Event
One of the ideal times to apply the BTST approach is just before an anticipated occurrence that can generate stock market volatility. This can include events like company performance reports, RBI Policy releases, election results, important corporate announcements, etc. In such instances, shares of firms surge in the near term. This makes it appropriate for the BTST trading strategy.
4. Trade In Selected Highly Liquid Stocks
The BTST technique requires meticulous stock price monitoring. In order to effectively follow stock prices, it is advised that traders restrict their trading to no more than two to three equities at once. Additionally, it is advised to choose highly liquid equities, such as large-cap companies, index-based stocks, etc., which are traded in significant quantities every day. This is because the trader must square off the position the next day.
5. Book Profits Upon Achieving Your Targets
The main opponent of the stock market investment is the greed and fear. Setting an entry price and a target level before trading is recommended. In order to avoid losing all of their winnings due to a market reversal, traders should book their profits once they reach their target price and control their greed. Small gains are preferable to no gains. A trader should monitor the stock carefully and adjust the stop loss if they believe the share prices may increase further. Once you reach your desired profit zone, it's a good idea to utilise a trailing stop loss.
A key component of the BTST trading method is the idea of capitalising on overnight price changes of securities. It comes with risks and difficulties despite the possibility of quick gains and the way it uses the settlement cycle to the trader's benefit. Before engaging in BTST trading, traders must carefully evaluate market volatility, liquidity, brokerage fees, and regulatory concerns. As with any trading strategy, BTST trading necessitates an in-depth knowledge of market dynamics, a systematic approach, and an acceptance of the dangers involved. Also, you will need a good online trading account. Before starting BTST trading, traders should evaluate their risk tolerance, create a solid trading plan, and keep up with market developments.
Same-day BTST trades are considered intraday trades. In this situation, intraday trading brokerage fees will be applied.
The major risk of BTST is that there is a possibility of a short delivery. It only occurs when the shareholder from whom you purchased the shares fails to deliver the stock to you before the end of the next day.
The auction penalty fees in BTST can range from 0.5 to 1%. It's applicable when you fail to deliver stock on time.
BTST trading is not permissible for stocks that are not subject to Graded Surveillance Measures (GSM) and Additional Surveillance Measures (ASM).
As per the experts' advice, waiting until 30 minutes to 1 hour before the stock market closes it would be beneficial if you sold them as soon as possible the next day.
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