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How Are Shares Settled In a BTST Transaction

29 Nov 2023

How are Shares Settled in a BTST Transaction?

  • As a beginner in the share market, you may have encountered mentions of BTST transactions pretty often.
  • BTST is a term every trader should know for profitable trading activity.
  • BTST is a settlement cycle that traders take advantage of to earn profits.
  • The short-term volatility of shares makes these transactions more profitable. 

What are Buy Today Sell Tomorrow Transactions? 

  • Buy Today Sell Tomorrow (BTST) is a settlement cycle of the share market that operates based on the simple formula of 'T+1' days.
  • Here, 'T' signifies the day on which you traded the shares.
  • This 'T' provides a time-lapse for both sellers and buyers to have their shares delivered to them physically in their DEMAT account.
  • BTST transactions offer a middle path to traders and help them avoid the T+2 delivery format. This is why they lie between cash market trades and intraday trades.
  • In intraday trading, you can manage all your positions before the session ends and wait for the price to increase. Whereas in cash trading, you can only make transactions after the shares are delivered. 

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How Does BTST Trading Work? 

  • If you buy a share in the regular trade, it will get reflected in your DEMAT account after T+2 days. This doesn't allow you to benefit if the share price rises the very next day.
  • However, with BTST trading, you can benefit from the upward price change before your share gets delivered. This way, the traders can execute their trade within two days of purchase. 
  • For example, if you buy shares of company XYZ at Rs 170 and sell them at Rs 180, you will earn a profit of Rs 1000. This gain will be credited to you before you get physical delivery of the shares to your DEMAT account. You can use this profit for further trading to earn quick profits. 

How Do Shares Get Settled in BTST Transactions? 

  • In BTST transactions, settlement is done in the share market as per the T+1 delivery format.
  • First, these shares are credited to the trader’s account on the very next day of purchase when they are received from the Clearing Corporation. The shares are then earmarked for same-day delivery against the sale that has already been completed. 
  • For example, you buy 100 shares of company XYZ on Monday and sell them on Tuesday. According to the settlement period, i.e. the T+1 cycle of your purchase, the shares will be credited to your DEMAT account on Tuesday. On a similar day, your shares will be earmarked for the sale that happened on Tuesday. All of your 100 shares will be debited from your account on Wednesday and will be settled. 
  • The trader will receive credit in his name for all the corporate actions when shares are transferred to his DEMAT account. Moreover, if any TDS is deducted for dividends, it will be directly filed against his PAN and also reflected in his 26AS form.
  • After the transfer of the shares through the BTST transaction, depository participant charges will be applied like regular delivery transactions. 

What is the Risk Involved in the Execution of BTST? 

  • The risk of executing BTST trading is less significant. It can be risky if the person you did BTST trading with fails to deliver the shares before the trading hours end on the next day.
  • Since you have no control over these delivery failures, you will have to cover the difference between buying and selling the stock on the stock exchange at the time of the auction. 

Conclusion

  • BTST, which stands for 'Buy Today Sell Tomorrow', allows traders to take advantage of the short-term price volatility of the shares.
  • Many traders buy shares at the end of the trading day and sell them the following day.
  • You can enjoy a profitable BTST trading experience by opening your DEMAT account today! 

 

Popular Stocks:  ICICI Bank Share Price | HDFC Bank Share Price | Britannia Share Price | Divislab Share Price | Tata Consumer Share Price

 

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