BTST Trading: Meaning, Working & Strategy

BTST Trading: Meaning, Working & Strategy

BTST's full form is  ‘Buy Today Sell Tomorrow.' BTST means a trading strategy which involves investors buying btst shares on a specific date and selling them the next day to take advantage of price volatility. Individuals can buy and sell securities conveniently and efficiently as online share trading has grown. BTST has also become a popular approach for traders looking to take advantage of short-term market volatility.

In this article, we will understand BTST meaning in detail, its features, advantages, disadvantages and a lot more. 

What is BTST Trading with Example?

BTST also known as ATST or Acquire Today, Sell Tomorrow, involves buying an asset today and selling it the next day.

In intraday trading, you buy some shares today and sell them on the same day. When you buy shares today and sell them after receiving the delivery in your Demat account, it is called a delivery order, also known as a CNC (Cash and Carry). BTST trades are somewhere between intraday trading and delivery orders. BTST trading means the process of purchasing shares today and selling them before the shares are delivered to the demat account. 

Let’s understand the BTST trading example: On Tuesday, I bought shares, and on Wednesday, the prices went up. My only option is to sell those shares on Wednesday, but how will I do that if I don't own them yet? This is where BTST is useful. It allows you to sell your shares even before they are deposited in your Demat account. 

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Table of Content

  1. What is BTST Trading with Example?
  2. How Does BTST Trading Work?
  3. Features Of The BTST Trade
  4. Advantages Of BTST Trading
  5. Disadvantages Of BTST Trading 
  6. Things to Keep in Mind for BTST Trading
  7. Best BTST strategies 

How Does BTST Trading Work?

Now that you are aware of what BTST is, let's examine its operation. Trades can sell their purchased shares through BTST trading before they are delivered or credited to their Demat account. The btst shares are typically deposited with your Depository Participant on settlement day, which is T+2 days after you purchase the shares. However, if you want to sell them before settlement, you can do a BTST trade. 

Say you buy 10 HDFC Bank shares on Monday for Rs.1,500 per share, making your total purchase Rs.15,000 you notice the shares are trading at 1,600 on Tuesday and decide to sell them. For the 10 shares, the selling price would be Rs.16,000. The settlement date for your buy order is Wednesday, and for the sell order, it is Thursday.

In BTST trading, you get the shares on Wednesday, which you have to deliver on Thursday, adhering to the T+2 settlement process. Once you get the shares on Wednesday, your stockbroker marks them as an upcoming obligation that needs to be settled on Thursday. In this way, the BTST trade gets executed.

Features Of The BTST Trade

The features of the BTST trade are as follows:

  1. You can sell shares that you haven't received in your Demat account yet with BTST.  This option lasts until you get your shares, so two trading days after delivery. 
  2. BTST isn't allowed in the Trade to Trade segment (T2T) since stocks are so speculative. Putting in a CNC order is mandatory.
  3. Brokers don't offer the BTST facility to SME companies.

Advantages Of BTST Trading

Let’s look into some of the advantages of BTST as follows:

  • You can take advantage of the stock market's short-term volatility with BTST trading.
  • The DP doesn't charge BTST trades since shares aren't deposited with them and sold before that.
  • If you think your intraday trade won't be profitable, you can convert it to BTST and sell it the next day.

Disadvantages Of BTST Trading 

Some of the disadvantages of BTST trading are as follows:

  • A penalty applies when shares don't arrive on the settlement date, and you don't deliver them for your sell order. Hence, it's essential to ask your stockbroker about short delivery penalties.
  • Margin penalties may apply if you don't keep enough balance in your account.
  • Most stockbrokers don't offer BTST, so transactions are handled through CNC instead. Brokers charge different prices for CNC orders, so you may need to pay for those.

Things to Keep in Mind for BTST Trading

Following are the things you should keep in mind for BTST trading: 

Candlestick Chart Pattern Analysis

This includes analysing and spotting price breakouts in market trends represented by candlestick chart patterns. Price movements that break out of prior resistance levels are sought after to identify a possible trend reversal or continuation. By putting in a BTST order and selling the shares early the following trading day, traders can profit from this situation and possibly cause a market correction before the stock reaches resistance levels. 

Put a stop-loss to reduce risk

Trades using the BTST technique carry some risk, just like any other trading approach. As a result, traders who want to limit their losses can do so by placing a stop-loss order. A stop-loss order restricts losses to the trader's predetermined amount by automatically leaving the market when a predetermined loss level is reached. 

Invest in liquid stocks

High trade volumes indicate a significant market demand for liquid equities. This implies that when traders buy these shares, they are more likely to be able to sell them off during the following trading session and profit from any increase in the stock's price. Additionally, liquidity guarantees effective trade execution, which is crucial for BTST trading. 

Lookout for significant events that will potentially impact the stock market

Traders using BTST should stay informed about noteworthy occurrences that could affect the market and the specific stock they are buying. Mergers, political unpredictability, changes in government policy, surprise profit reports, and interest rate adjustments are a few significant events that could impact the market. By being aware of these kinds of events, traders can forecast changes in the stock price and place BTST transactions in line with their predictions. 

Best BTST strategies 

People need to understand technical trading in addition to selecting the stocks for BTST trades and monitoring more general market news to predict price movement to be profitable. 

Picking BTST Stocks

The BTST stocks that have the potential to break out in the upward direction are the best ones. A potential price breakout is indicated, for example, if XYZ's stocks were trading at Rs. 110 at 3 p.m. and shot up to Rs. 115 at 3:15 p.m. 

Price Breakouts in Candlestick Charts

A great tool for identifying BTST equities is the 15-minute candlestick trading chart,    which displays the share's highs, lows, closing, and starting values. When intraday traders begin settling their trades after 2:00 pm, the concluding leg of the trading session sees the highest price action. A stock price trend toward upward movement for the upcoming trading session, contingent on market risk, is indicated if it breaks over the resistance level between 3:00 and 3:15 pm.

Select Liquid Stocks

The best stocks for BTST trading are those with moderate to high liquidity because you'll find enough buyers for them when you sell. Traders often choose large-cap stocks that are included in the index for the BTST strategy. 

Invest Before a Significant Event

A noteworthy development regarding a business, industry, or economy typically has a big impact on the price of the stock. It could have to do with the company, such as landing a new project or transaction, a merger or acquisition, a repurchase, the declaration of a dividend, or economic policies, such as RBI policies. Arranging a BTST trade in conjunction with a noteworthy market event represents a fantastic short-term possibility. 

Put Stop Loss and Target Price

Set your stop loss and target price before you execute a BTST trade. The price point at which an automatic sell order fulfilment occurs is known as the stop loss. If your forecasts are off, it helps limit the amount of money you lose on the trade. For example, you anticipate a rise in the stock price during the upcoming trading session. Rather, it advances downward. In a situation like this, a stop loss assists to restrict your losses. It indicates a price point over which losses are avoided.

Traders need to book profits as soon as the stock achieves the desired price. Since the market is unpredictable, traders risk losing all of their gains if the trend reverses. 

BTST trading has gained popularity as a strategy that allows traders to capitalise on short-term market volatility. By buying shares today and selling them tomorrow, investors can potentially benefit from price fluctuations. So, understanding what BTST trade means gives you a new approach to profit from your trading activities. This approach provides flexibility, enabling traders to sell shares before they are delivered to their Demat accounts. Moreover, with the online trading app, traders can conveniently access their Demat accounts. With the platform's easy-to-use interface and convenient execution speed, trading is hassle-free.

FAQs on What is BTST Trading

In intraday trading, you must sell the assets on the same day. So, it is risky. In BTST trading, you get two days' time. So, BTST is safer than intraday trading. The cost of Demat debt transactions is also lower as the delivery of assets hasn’t occurred. However, you can trade with any of the two strategies based on your trading objective and risk appetite.

It's best to buy BTST stocks 30 minutes to an hour before the market closes.

BTST allows you to sell shares either today or tomorrow. Intraday trading requires selling the shares on the same day of order execution or converting the trade into a delivery trade.

You can take advantage of short-term volatility with BTST stocks. Investing in this type of trade allows you to buy today and sell tomorrow. Plus, you can sell the shares before they get into the Demat account.

Choose stocks for BTST trades based on these things: A stock with prices that move above the resistance level on the candlestick chart, Stocks with a large cap or moderate to high liquidity, Don't make trading decisions based on irrational market behaviour.

You will only be able to convert from intraday to delivery/BTST/MTF if your account has enough margin available. Your order will not be taken into account for auto square-off at 3:15 p.m. once it has been converted.