If you are new to the stock markets, chances are you have come across repeated mentions of BTST trades or buy today sell tomorrow trades. Many new entrants are stumped by the question of what is BTST trade?.
In this article, I will explain you in detail about the BTST trading and what are it’s advantages and disadvantages.
We will also explain in simple terms about “Auction Penalty” that traders face in BTST and how you can avoid them.
What is Buy Today Sell Tomorrow (BTST) Trading ?
BTST stands for Buy Today and Sell Tomorrow.
BTST trades are those trades where traders take advantage of short-term volatility by buying today and selling tomorrow. Under this facility, traders can sell the shares which they have bought previously before they are delivered to their demat account or before they are credited into their deemat account.
Looking complicated? Don’t worry, I will simplify it.
In a normal equity delivery trade, known as Cash and Carry or CNC order, the transaction is complete in T+2 days where T is the day of trading. The buyer gets shares in his Demat account and the seller gets money in T+2 days.
For Example, if you buy some shares of a company on Tuesday, the shares will be credited in your demat account on Thursday. While counting T+2 days, holidays in exchanges are excluded. So, if there’s a holiday in between then the delivery period is extended.
Now, what if you got an opportunity to book the profits in between those 2 days? You cannot take this opportunity by selling the shares as it’s a normal CNC order.
BTST solves this problem of traders by allowing them to sell their securities before these are credited to their Demat account. This helps traders to benefit from short-term volatility in the price of the stocks.
BTST trades do not attract Demat Debit Transaction Charges known as DP charges, as shares are not credited in your Demat account.
Normally in CNC order, DP charges of around Rs13 to Rs20 is charged when shares are debited from deemat account. It varies from broker to broker.
But since in BTST, the share are not credited yet to the deemat account, DP charges are not levied and you can save certain amount on that.
In intraday, your prediction about share price should come true before 3.30PM. You are forced to close the position before that even though you think your target might be hit if you had little more time.
In BTST you get 2 more days for your trades to reach the target price.
What are the Disadvantages of BTST order?
Biggest risk in BTST is short delivery.
Let us understand with an analogy:
Lets say, you have deposited a cheque into your bank account for Rs.10000 and are expecting the cheque to be cleared by Wednesday evening,
You write a cheque in favor of a friend on Tuesday. You know that your friend will present the cheque to his bank on Wednesday and by the time it reaches your bank, the other cheque would have cleared.
But we are not in an ideal world, what happens if the cheque you deposited into your bank account bounces on Wednesday?
Yes the person who gave you the cheque is penalized by his bank, but you are also penalized now because your cheque would have also bounced on Thursday.
You bought shares on Monday and you sold them on Tuesday, so you assumed that the person selling you shares on Monday will deliver it to you on Wednesday evening and what you are selling on Tuesday will be adjusted with stocks you receive on Wednesday.
But unfortunately, you had a short delivery, so on Wednesday evening you don’t have any stocks, so what happens is that on Thursday when you are supposed to deliver the stocks, you don’t have any.
In such a case, similar to the cheque bounce example, you default. When you default, the exchange will now put that auction penalty on you sometimes as high as 20% of the value.
How to Avoid Auction Penalty in Today Sell Tomorrow (BTST)
So how can you avoid this penalty?
It’s better to take trades in ae Group stocks. These stocks are highly liquid means, huge number of shares are traded almost all time. Shares of big companies like Reliance, Infosys and HDFC bank etc which are part of sensex belongs to “A” group
In “A” Group Stocks, the short delivery risk is almost nil and hence very less probability to face a penalty.
There are many strategies traders make use to profit from BTST trades.
All the strategies involves buying stocks between 2.45PM to 3.30PM by observing following parameters.
One strategy is to check if there any Heavy surge in volume along with rising price and touching days high. Assumption here is that the rise will continue during next day also since the traders who missed buying will buy tomorrow too.
Another commonly used method is, If any news is expected about the company after the market closed and you think it will positively impact the share price, you can buy with the intention of selling it tomorrow.
Last way is, if there is significant increase in open interest along with rise in the share price indicating long build up, you can accumulate the shares and sell it tomorrow.
Selection Of Stock Brokers For BTST Trading:
If you are planning to implement BTST trading as part of your trading strategies. it is very important to select the stock broker carefully. Not all stock brokers offer facility of BTST.
For example, Upstox does not allow BTST trades.
Zerodha, Motilal Oswal, Sharekhan etc provide such facility. Among these Zerodha is the stock broker who charges lowest brokerage. They have established themselves as most trusted and reputed brand of India with highest number of customers than any other stock broker of India.
You can use the below button to directly go to thier account opening page.
Buy Today Sell Tomorrow (BTST)- Final Thoughts
To conclude, BTST or Buy Today Sell Tomorrow involves lot of risk. Proceed with such type of trades only if you are fine with penalty. Normally the penalty is around 2 to 3% if you are lucky but in rare event, it may be even 20%.
You can adopt as part of your swing trading stratergy. Suppose you purchased shares of a company and expect your target may be achived in another 5-6 days, but lucikly the target is achived one the very next day it self. Then, you can carry out it as BTST and avoid of risk of price taking U turn.
Hope this article was helpful in understanding about BTST trading. Please share this article through social icons on your left/below.