What is a BTST Trade?

There are different types of trading methods in the financial market, some focus on making money within a day where you buy and sell the shares within the same day to get profits out of it and some are for long term investment where you invest for a long term period, hoping the value will grow over time.

But there is one more strategy in between these two strategies, where you invest or buy today and sell it tomorrow to catch quick price movements. This is exactly where a BTST trade comes in, it is a popular strategy for traders who want to hold a position for more than a day but less than a few weeks.

In this blog, we’ll dive into the concept of BTST Trade. You’ll learn what BTST means, how it works, and the different ways you can use it in your trading journey. Since understanding the basics is the first step to using this strategy effectively, let’s break it down in detail.

What is a BTST Trade?

The full form of BTST is “buy today, sell tomorrow”, identical to its name BTST trade means you are buying the shares today and selling them in a few time gaps. The main game lies in the stock market settlement process as whenever you buy new shares they do not directly appear in your Demat account rather it takes one working day for the shares to be delivered, this process is known as T+1 settlement cycle i.e Trade day + 1 day. 

In BTST trades investors sell their shares even before they get officially delivered to their demat account, these shares are already bought by you but not yet delivered, they are still in transit. The main idea behind the BTST trading is to gain profits from short-term price changes that happen overnight. For example: Suppose you are tracking the stock of a company and by looking at the company’s performance you think it is going to announce good results tomorrow, with a share price of Rs.200/share you buy 100 shares worth Rs.20,000. You place a ‘buy’ order using the CNC (Cash and Carry) or Delivery option in your trading app. The next day, the company announces excellent results, as you predicted. The stock market opens, and the share price jumps to Rs.210 and you sell your 100 shares at Rs.210 immediately, giving you a profit of Rs.1,000 (100 share X Rs.210) in just one day. 

How to Execute a BTST Trade? 

1. Select the Right Stock: Investors shall look for stocks that have high liquidity meaning these stocks have high trading volume. In short it means that people are buying and selling it in high volume, so they are easy to buy and sell whenever you want.  
2. Buy Order: Investors shall buy the decided share on the trading day (let’s call it T-Day), as you will place the order you would have to select Delivery or CNC (Cash and Carry) option. Avoid clicking on intraday or MIS options as this would force you to sell the shares within the same day. 
3. Hold Overnight: Once you have placed the order and it is executed, you need to wait for the market to close and hold this position overnight. 
4. Sell Order: As the market opens on the next day (T+1 Day), you should sell the shares you have bought just by going to your portfolio, selecting the stock and placing the sell order.

The BTST transaction is completed as you will execute the sell order and the profits and loss related to this will be reflected in your trading account. 

Things to Keep in Mind 

1. Short Delivery

One of the common risks in BTST trading is short delivery. Normally, when you buy shares on T day, they get credited to your demat account on T+1 day. Sometimes due to seller default or settlement issues, the shares may not be delivered on time and this situation is called Short Delivery. Due to this you will not be able to sell the shares as planned as you haven’t received the stocks yet, when this default comes in the eyes of the stock exchange they hold an auction to buy the shares from the open market which are then delivered to your buyer. Here the price difference between your selling price and auction price is to be paid by you also called the auction penalty, this penalty can be up to 20% of the share value, which could result in wiping out your profits or can even lead to significant losses. 

Although it is not common in large liquid stocks, it is something that you should keep in mind before executing BTST trades.  

2. Broker’s Permission

Not all the stocks are eligible for BTST trades, if not permitted by the broker. Some brokers provide a list of stocks that are eligible for BTST trades, so one should always check this before executing a BTST trade.

3. Full Capital Required

Compared to Intraday trades where investors get the benefits of leverage (margin), in BTST investors need to have a full amount of money to buy the shares. 

4. Volatility Risk

The financial markets are very unpredictable, sometimes the market does not change due to positive news. Also, a global event overnight can cause the entire market to fall, leading you towards losses. 

BTST Trade Strategies for Beginners

Let’s look at some trade strategies that can be used while executing BTST trades:

1. News and Events-Based Strategy

This strategy is widely used by BTST traders, they buy the stock a day before a major company event like result announcement, merger, new product launch or policy changes. If these events turn out positive then there is a possibility that the prices will rise the next day, allowing you to sell the stock for a quick profit. 

2. Breakout Strategy

This strategy mainly revolves around technical analysis as investors need to look at the stock’s price chart as sometimes a stock might trade within a certain price range but when it finally breaks above that range (a ‘breakout’), it often continues to move up with strong momentum. Here investors purchase the stock on the day of breakout expecting the positive price momentum to continue for the next day.

3. Capturing Market Sentiment

In this strategy you need to have a look on the overall mood of the market, if the market is moving in an upward trend then the general market sentiments are very positive meaning the stocks tend to rise. You can have a look and invest in the leading sectors of the market and sell it next morning to ride the positive wave.

BTST Trade vs. Intraday Trading

Many beginners get confused between BTST and Intraday trading, here is a quick comparison for you to know the right difference. 

Feature	Intraday Trading	BTST Trading
Time Frame	Buy and sell on the same day.	Buy today, sell on the next trading day.
Position Holding	Positions are closed before the market closes.	Positions are held overnight.
Main Goal	Profit from price movements within a single day.	Profit from overnight price changes and opening gaps.
Risk of Short Delivery	No risk, as you don’t need delivery of shares.	Yes, there is a risk of an auction penalty on short delivery.
Leverage/Margin	High leverage is usually provided by brokers.	Generally, no leverage. You need 100% of the money.
Order Type	‘MIS’ (Margin Intraday Square off) or ‘Intraday’.	‘CNC’ (Cash and Carry) or ‘Delivery’.

Advantages of BTST

1. Quick Profits Potential: BTST allows traders to earn profit from short-term price movements without holding their stocks for a long period. Also the invested capital gets back to the investors as they sell, giving them possibilities to trade further.  
2. Overnight News Benefits: Global market news generally comes after the closure of the Indian stock market, giving you an edge to benefit from these overnight turns.
3. Avoids Same-Day Volatility: Intraday trading can be very stressful, as there is a price fluctuation every minute, but with BTST you can make a decision and avoid the pressure of having to close your position before the market closes.  
4. Good for Swing Trading: If the stock seems to continue with its positive momentum then you can keep it on hold for a few more days instead of selling it immediately, BTST can be the first step in a swing trade. 

Disadvantages of BTST

1. Short Delivery Penalty: An auction penalty can turn your profitable trade into a loss hampering your expectations and funds.
2. Overnight Market Risk: Overnight news and events can be fatal as well because you don’t have any control over what happens in the world when you are asleep. One negative event can change your profits into a loss.
3. No Ownership Rights: As the shares are sold even before you get them in your Demat account, any company benefits like bonuses or dividends are not eligible for you as you are not the legal owner.  
4. Brokers Restrictions: If there is a high volatility in the financial market, brokers might restrict BTST trades of certain stocks in order to protect their clients from high settlement risk. 

Conclusion

This is a trading strategy that is neither as fast as Intraday trading nor as patient as long term investing, it is a middle-ground strategy. It is something that fits perfectly in between offering traders a unique opportunity to earn profit from short term events, news or changing market sentiments. 

However, it does not end in the desirable way as it comes with risk associated with it which can impact you in a negative way. Investors shall understand the proper mechanism, start with a small amount of capital and look for opportunities in highly liquid stocks before starting BTST as this can minimize your losses.  

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