BTST stands for "Buy Today, Sell Tomorrow." It is a trading strategy used in the stock market. BTST trading is based on a simple premise: purchase shares on one day and sell them on the following day, ideally for a profit. This strategy essentially leverages the concept of overnight price movements in the stock market. Investors who want to hold their position in a stock for more than a day but do not have adequate funds to keep it overnight can use the BTST strategy. Essentially, BTST allows traders to buy shares today and sell them tomorrow without the shares being reflected in the trader’s Demat account. This way, traders can avail the benefit of increased stock prices in the short term.
What is BTST trading?
BTST is a settlement process that enables traders not to take delivery of the shares they purchase for one day. This enables traders to make the most of the short-term fluctuations in the stock price. Most importantly, similar to equity trades, BTST traders need to maintain adequate funds in their account to cover their shares' value while trading. Generally, brokers update a list of stocks eligible for BTST during the day. Traders can select the eligible scrips and place the order for the same. The stocks purchased in this way are placed as a BTST trade, which means they can sell on the next day only.
Executing a BTST trade
To execute BTST trades, traders need to have access to a Demat account and Online Trading Account. The process is as follows:
- Traders purchase the shares to sell them the next day and carry out a BTST trade. Let’s consider an example that the shares are purchased on Friday.
- The shares are credited to their Demat account on Monday (T + 1 day), as per the trade settlement cycle.
- These shares will be earmarked for delivery for the sale transaction executed on Monday.
- The earmarked shares on Monday are debited on Tuesday, and the settlement is complete.
Things to keep in mind for BTST trading
Here are a few things you must remember before using the BTST trading strategy:
1. Candlestick chart pattern analysis
This involves analysing and identifying price breakouts in candlestick chart patterns' market trends. This involves looking for price movements that break out of previous resistance levels indicating a potential trend reversal or trend continuation. Traders can take advantage of this by placing a BTST order and selling the shares early in the next trading session before the stock reaches resistance levels that will potentially result in a price correction.
2. Put a stop-loss for minimising risk
Like any other trading strategy, BTST trades come with a certain amount of risk. Therefore, traders can avoid losing too much money by setting a stop-loss order to minimize the losses. A stop-loss order automatically exits the market when a specific loss level is reached – thereby limiting losses to the amount decided by the trader.
3. Invest in liquid stocks
Liquid stocks are those with high trading volumes, which means that they have a substantial market demand. This means that when traders purchase such shares, they have a higher chance of being able to sell off the shares in the next trading session, thereby benefiting from any price appreciation within the stock. Liquidity also ensures that the trades can be executed efficiently, which is essential for BTST trading.
4. Lookout for major events that will potentially impact the stock market
BTST traders should keep themselves updated with significant events that might impact the market and the particular stock they are invested in. Some significant events that could impact the market include mergers, political uncertainties, shift in government policies, unexpected earnings results, and changes in interest rates. Traders can use the knowledge of such events to predict price movements in the stock and execute BTST trades accordingly.
Advantages of BTST trading
Here are some of the major benefits of BTST trading:
1. Rapid gains
The BTST trade strategy provides opportunities for quick gains within a short timeframe as traders leverage overnight price movements.
2. Save on overnight holding costs
In contrast to several trading methods, BTST trade involves selling your position the very next day. This helps eliminate costs associated with holding stocks overnight.
3. Capitalise on market fluctuations
The BTST trade strategy enables and empowers a trader to benefit from market fluctuations. BTST traders do not commit to any long-term holding positions and remain flexible to take advantage of price variations in the short term.
4. Leverage short-term opportunities
BTST traders are well-versed in adapting to changing market conditions. They do not commit to long-term positions and instead focus on maximising their returns in the short run.
Disadvantages of BTST trading
Despite its numerous advantages, BTST trading has some drawbacks and associated disadvantages. Let us take a look at some of them:
1. Significant market risk
While BTST trade thrives on price fluctuations, it also exposes traders to significant risk. With sudden and high price fluctuations, BTST traders are always at risk of incurring losses on bad trades. For example, an end-of-session price surge may be a market’s impulse reaction and not continue in the same direction the next trading day. Or, the position may be affected by changes during non-trading hours, leaving traders vulnerable.
2. Margin options
BTST trades occur exclusively in the cash segment and brokers do not provide margin facilities like intraday trading. In addition, starting in 2020, the Securities and Exchange Board of India (SEBI) revised the BTST regulations, mandating traders to deposit a 40% margin prior to executing BTST trades.
3. Timing is key
Success in BTST trade is dependent on precise timing and quick execution to take advantage of short-term price fluctuations. Any errors or delays in placing trade orders can lead to unfavourable outcomes or missed chances. Additionally, if you are short selling, failing to promptly deliver stocks can incur penalties, as the exchange may auction shares to fulfil the transaction, further complicating delivery and resulting in additional penalties.
Some of the common BTST strategies
With the basics of BTST trade clarified, let us take a look at some of the most common strategies that can be followed and inculcated to become successful BTST traders. These strategies are cornerstones of the trade process and can be studied as fundamentals of the BTST trade.
1. Choosing the right BTST stocks
First and foremost is choosing the right stock. Traders have to be on the lookout for stocks that are on the cusp of a price breakout and gaining upward momentum.
2. Employing strategies
Besides knowing the basics, being aware of some aspects of technical analysis is also a must for BTST trades. For example, studying candlestick charts to spot price breakouts can be an essential tool in your arsenal. A candlestick chart covering the last 15 minutes of trading is a great way to study the movements of a stock. More often than not, major price movements in a stock tend to occur around the closing hours of the market when intraday trades are settled. If, during this time, a stock breaks past its resistance level, that can be an indicator of upward movement in the next trading session.
3. Liquid stocks are good
For BTST traders, moderate to highly liquid stocks are the best as they ensure there are sufficient buyers when you decide to sell. Traders typically prefer large-cap stocks that are included in the index for this strategy.
4. Enter the market ahead of a major event
For the short-term, events like acquisitions or mergers, changes in government or RBI policy, and new projects and announcements can significantly sway the stock price. Planning to enter the market before such events presents a great chance to make profits from BTST trading.
5. Stop loss and take profit orders
Planning a BTST trade with clear stop loss and take profit levels is a great way to ensure returns and avoid losses. A stop-loss order is a price level where the stock will be sold automatically if its price declines below that mark, curbing losses. On the other end of the spectrum, a take-profit order will automatically sell the stock when the price rises above the predetermined level, ensuring profits even if the prices fall after the climb.
Is there a risk to executing BTST trades?
BTST trading can be a great way to make profits if executed correctly. However, it comes with certain risks that traders should be aware of. The primary risk associated with BTST trading is that of price volatility. Stock prices can be incredibly volatile, which means that the shares you've purchased can decrease in value overnight, leading to losses. Additionally, in some cases, the price could be higher than the purchase price, attracting higher charges, leaving traders with less profit.
Difference between BTST and intraday
BTST and intraday trading are both very popular stock market trading strategies. However, while both strategies look for short-term profits, they have significant differences when it comes to the involved risks and the period for which stocks are held, among others. At the basic level, intraday trading involves traders buying and selling stocks on the same day to leverage price fluctuations. Conversely, BTST trading involves buying a stock today to sell it the next day.
Here are the key differences:
Feature |
Intraday |
BTST |
Holding duration |
Stocks are bought and sold on the same trading day |
Stocks are bought one day and sold the next after being held overnight |
Risks |
High risk owing to price fluctuations |
Medium to high-risk levels owing to holding stocks overnight |
Profit potential |
Varies depending on intraday price volatility |
Varies due to changes in market trends overnight |
Focus |
Immediate market movement |
Overnight or short-term market movement |
Conclusion
BTST trading is a strategy that hinges on the concept of exploiting overnight price movements in the stock market. While it offers the potential for quick profits and leverages the settlement cycle to the trader's advantage, it is not without its risks and challenges. Traders must carefully consider market volatility, liquidity, brokerage costs, and regulatory factors before engaging in BTST trading.
As with any trading strategy, BTST trading requires a thorough understanding of market dynamics, a disciplined approach, and a willingness to accept the inherent risks. It's important for traders to assess their risk tolerance, develop a robust trading plan, and stay updated with market trends before embarking on BTST trading endeavours.
Finally, it's imperative to have a Demat account with a reliable and professional financial service provider like Bajaj Financial Securities Limited for a smooth trading experience. Bajaj Financial Securities Limited offers innovative and seamless trading solutions to enhance your trading journey’s overall experience.
