BTST trading, or Buy Today Sell Tomorrow Trading, is a popular trading strategy based on buying shares on day one (T) and selling it the next day (T+1) without having those shares in the Demat account.
Let us learn more about BTST meaning and the BTST trading strategy:
If you buy shares today, but instead of selling them by the end of the day (intraday trading) or after several days, you hold onto those shares till the market opens the next day and then sell it by the end of the next day (tomorrow) that is called BTST trading.
The interesting thing to note is that the shares you have bought today are not yet delivered to your Demat account (this happens only on T+2 days), but if your broker handles BTST trading, you can decide upon the shares to sell tomorrow.
You take advantage of the speculation that the price will rise tomorrow, so buying today sells works tomorrow in your favour and can yield a profit for you the next day instead of waiting for the shares to be credited on T+2 day and then selling. By this time, you might lose a profit-making sell trade.
How Does BTST Work?
First of all, it has to be a Cash and Carry order (CNC); only then can you execute the BTST trade. CNC order type is used when you buy stocks and hold them overnight, for as long as you want. No leverage and no auto is squaring of position. It cannot be an MIS (for Intraday) or NRML (Normal – usually used for futures and options) order type.
Second, not all stocks can be bought today and sold tomorrow under the BTST trading strategy. The following types are not allowed:
Trade to Trade group (T2T)
Graded Surveillance Measures (GSM)
Additional Surveillance Measures (ASM)
Once you have bought the shares, you need not wait for them to be deposited by T+2 day; you can sell the shares tomorrow without having the actual shares in your Demat account.
Advantages Of BTST
The advantage of BTST arises from the fact that you do not yet have the shares you have bought delivered to your account. Hence you save on Demat debit transactions when you sell them.
It could yield more profit than intra-day trading, with the market swinging upwards at opening the next day. This is, of course, speculative. BTST proves profitable only when backed by sound trend analysis and an understanding of market conditions.
Disadvantages Of BTST
Since BTST occurs in the cash segment, brokers will not offer you margin money.
BTST could prove risky with sudden movements in the market because of world events and government policy changes.
Risk of Short Delivery - If the shares you have sold in BTST (before actual delivery) are not delivered to your Demat account on T+2 day, your original seller will be penalized, but so will you – since you have sold the shares to someone else too. There is a delay in delivering the shares on T+2 day.
This Penalty is not fixed and is based on how much the stock price has increased. Since the exchange has to buy the stocks through an auction process, you will have to bear the difference between selling the stock and the price the exchange had to purchase the shares.
How To Scan Stocks For BTST Trading Strategy
Usually, it is advisable to select highly liquid stocks. This could typically be large-cap stocks or stocks part of an index. The main idea behind choosing liquid stocks is that there will be enough buyers for you to do BTST trading.
However, some stocks are excluded from BTST (as explained above) – T2T, GSM, and ASM groups.
How To Make BTST Trades At Enrich Money
If you are a PoA client at Enrich Money, that is, if you have given Power of Attorney to Enrich Money, you are allowed to do BTST trading. But if you have not been given Power of Attorney, you will not be allowed to do BTST.
After logging in to Enrich Money Web Hunt Tick or Mobile Hunt Tick App, you must select the CNC order type and execute the buy trade when buying the stock on day one.
While selling shares on T+1 day, also you have to select the CNC order type. It will be automatically understood as BTST.
So, if you buy 100 shares of a stock XYZ priced at Rs. 10 per share today order type CNC, you need to have Rs. 1000 in your account. If you do not have Rs 1000, then the trade will not be executed on account of insufficient funds. Next, when you sell these shares at Rs. 15 per share the next day with the CNC order type, the trade is taken as BTST and executed accordingly.
Penalization for Short Delivery:
Suppose you buy the shares on Friday (day T) and sell it on Monday (T + 1). If you get the shares delivered to your Demat account by the original seller on Tuesday (T+2), then Enrich Money will automatically do the tallying in the background for the BTST trade. But, if there is a delay, you will be penalized directly by the exchange for the difference in the price you sold the shares and the price the Exchange had to buy the shares in the auction to complete the sell trade to the final buyer.
Summary
We hope you understand BTST's meaning and when to use BTST and decide upon shares to sell tomorrow (the next day). BTST is riskier than intra-day trading, but it could prove more profitable if the decision is backed by sound market understanding and trend analysis.
