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What is BTST Trade and How to Profit From It

12 Apr 2024

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. If you are a novice, you must know the ins and outs of trading, including terms you may come across. Familiarising yourself is the key to good and profitable trading activity in the markets. 

While trading in the stock markets and share markets, traders must know essential tactics and strategies that help them to make their trades better and faster. For instance, for traders who are short-term investors, strategies become more important as trading must be squared off for profits in the short run, unlike long-term stock investing. Well, worry not. Here is an explainer to clear up all your questions on what is BTST in stock markets.

  • What is BTST trade in share trading?

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 demat account.

  • BTST trade meaning and how does BTST trade work for you in the share market

In the case of an equity delivery order, the shares you buy are credited to your demat account in T+2 days, where T signifies the day on which shares were traded. The seller, on the other hand, receives credit in his account on the T+2 days as well. This means that there is a time lapse for both buyers and sellers before shares physically arrive in anyone’s demat account for holding. 

  • What is BTST? An Example 

Let us say that a trader buys shares of Company ABC at Rs. 170. Then, the trader sells the shares of Company XYZ at Rs. 180. The selling occurs in the subsequent trading session. The trader gains a profit of Rs. 1000. This profit is realised even before the trader has received the delivery of shares in the demat account. Therefore, the profit has been quick and the trader can go into more trades this way, earning profits faster than normal. 

With regular trading of shares, traders are not permitted to take advantage of any increases in the share price, if there are short-term rises, like the price increases the next day. However, if brokers offer a service of BTST, traders can make the most of price increases in shares in advance of their deliveries into their demat accounts. 

  • What if you are unable to execute BTST in the share market? 

In case, the shares you purchased appreciate in value and you wish to book profit from them, you cannot sell the shares if the order is a normal order. However, if the order is a CNC order, short for a cash and carry order, then you are allowed to sell the shares and book profits. This way, you make the most of opportunities in BTST trading and book profits as you see fit. You, as a trader, must be alert enough to notice an opportunity for gain as soon as it presents itself. Then, you can make the most of the BTST trading strategy. 

  • Is there a risk to executing BTST trades?

Several traders are wary of short-term trading as there may be risks involved. There is always the fear of gaining a profit in a short time, and whether this will be possible given that markets may act in an unpredictable manner. While the risk isn’t that big, it is still there. There is the smallest possibility that the person from whom you purchased the shares fails to give you the delivery of the stock before the end of trading hours on the next day. Of course, you have no control over this, and no trader can anticipate how trades will go due to certain delays. 

If such an event happens with you, know that the penalty for short delivery is not fixed and is determined by price movement and liquidity. You will be required to cover the difference between your selling price and the price at which the exchange buys the said stock during the auction process. You will be called upon to pay the difference between the price at which you sold your shares and the price at which the exchange purchased shares from the auction. 

This price can go as high as 20% or if you are lucky it will be barely 1 or 2%.

  • Some BTST Trading Strategy Considerations

BTST can be found between the cash market and intraday trading. In the case of intraday trading, traders have to square off any and all positions in advance of the close of the trading session. In case there is an expectation of prices going up, positions may be held. 

In terms of cash trading, traders are only permitted to transact after their shares have been successfully delivered to their demat accounts. This takes two days, so any opportunity that arises before that cannot be taken advantage of. When you think of the share markets, investors are looking for any opportunities to make returns quickly, and a lot may take place within two days, given that volatility is a factor to account for. BTST gives traders a middle path to make the most of their trading and a chance to make gains with ease. 

Final word

A lot of traders carry out BTST trades successfully on an almost daily basis. Many follow the practice of buying shares at the end of the trading day and selling them the next day. You can also execute these trades seamlessly with Motilal Oswal. Your online trading account opening is only a click away.


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