BTST Trade is Known For “Buy Today, Sell Tomorrow.” You’ve probably heard of day trading, which is the practice of purchasing and selling stocks on the same day. Delivery trading is the antithesis of this, in which shares are transferred into your demat account and held for several months or even years. What do you think? BTST, or buy today, sell tomorrow, is a trading strategy used by these two. You can profit on the market’s overnight, short-term volatility with BTST. We will take you through every step of BTST exchanges in this post, from what they are to the rules that control them.
BTST Trade
Buying a stock one day and selling it the next is known as “buy today, sell tomorrow,” or BTST trade. It enables traders to profit from the stock markets’ transient price volatility.
As a result, the shares are sold before settlement, which in India happens after T+1 days. In actuality, the shares that you originally purchased never end up in your demat account. There’s just a catch, though.
You receive the equivalent amount in your trading account when you sell shares. Because of SEBI laws, you are not allowed to utilize that amount in a BTST trade on the same day, that is, right away. You are going to have to wait until tomorrow.
Also Read- PMS Vs Mutual Funds: What is Better?
How BTST Trade Work?
Now that you are familiar with the meaning of BTST transaction, let’s examine how BTST operates. Between intraday trading and delivery trading is where BTST trading is located.
When you purchase shares on the stock exchange through delivery trading, the stock is delivered within T+1 day. Here, T denotes the trading day.
However, on T+1 day, the seller will also get the credit. Therefore, you are powerless to take any action if a stock price increases before T+1 day.
In intraday trading, the position is bought and squared off on the same day. If there is a possibility of a price increase, nevertheless, you should hold onto the position.
In such a case, you can take advantage of market volatility by applying BTST the following day before to the delivery of stocks.
Let’s use an example to better grasp BTST. On Monday, you purchase 100 shares of ABC firm for ₹500. On Tuesday, you will now sell these shares for ₹600. Here, you make ₹10,000 in profit.
Recent regulations by SEBI prohibit you from using the credit you obtained after selling your BTST stock on the same day.
Rules in BTST Trade
For the BTST trade, SEBI has established the following regulations:
- New trading margin regulations were established by SEBI and went into effect on September 1, 2022. This new rule states that for BTST trades, you must have 40% of the upfront margin. 20% of the selling price and 20% of the buying price. If you do not keep this up, you will be penalized.
- A seller in BTST is subject to the auction penalty if he sells the share but is unable to deliver it. This fine ranges from 0.5% to 1% and has a maximum of 20%. This complies with the guidelines for short sales.
- Brokers do not offer BTST clients a margin facility. To purchase the shares, you will need to pay the full amount.
Factors to Consider for BTST Trade
Trading BTST carries risks as well as benefits. Let’s examine a few tactics that can be employed to maximize profits from trading BTST.
1. Put a Stop to Loss
Although the markets are turbulent, you can make money using the BTST trading technique. Share prices are subject to decrease at any time. You can lessen your loss and be protected from this with the stop-loss option.
Sell orders automatically execute at a designated stop-loss price, which can be applied before officially closing the trade. If the stock price drops, the system automatically executes the trade, preventing additional losses at the predetermined stop-loss level. Initiate the trade at the pre-set stop-loss price to minimize losses in case of decreasing stock prices.
2. Analyse Candlestick Charts
Traders utilize candlestick charts to identify trends in the short-term price swings of stocks. Utilize candlestick charts to pinpoint stocks suitable for Buy Today, Sell Tomorrow (BTST) trading strategies. Identify potential BTST stocks by examining their short-term price swings through candlestick chart analysis.
Stock prices move significantly at the end of trade after 3 p.m. During this period, the increasing trend in stocks suggests holding the stock for BTST trading.
3. Select Liquid Stocks
Trading BTST is feasible for highly volatile, liquid stocks. Finding enough buyers for these stocks is not difficult. Liquid stocks are large-capitalization stocks and index-based stocks.
4. Keep an Eye on Key Events
A number of events, including mergers and acquisitions, natural disasters, RBI announcements, business financial performance, etc., have an impact on the stock market. Watch for such occurrences.
5. Margins
Usually, taking a position requires paying the full margin because the trade is essentially a “delivery” on paper. However, other features, like Dhan’s MTF, let you get up to 4x leverage for BTST situations.
Conclusion
BTST is based on the idea of taking advantage of stock market price changes that occur over night. BTST trading falls between delivery and intraday, occupying a strategic middle ground for astute investors. It demands meticulous handling due to its unique characteristics, emphasizing the need for careful navigation. Thorough research is essential in managing BTST trades, ensuring informed decisions and mitigating potential risks.
Comprehend the diverse guidelines and directives pertaining to BTST, fortify your trading approach, and guarantee that your trading mechanism has undergone rigorous testing.