There are many terms used in the share market to run various types of trading options. And these trading options or phrases can confuse the new trader or investor in the Indian share market. BTST trade or Buy Today Sell Tomorrow trade is also one of the confusing aspects available in the stock market. In this post, we will have a deeper look at this term and try to understand what BTST trade is and is risky. Here you will also understand the features, advantages, and disadvantages of the Buy Today, Sell Tomorrow.
So, if you want to learn about all these things, keep reading our latest post about this essential term of the stock market.
What is BTST?
Buy Today Sell Tomorrow (BTST) Trade refers to trading where the investor buys the shares and sells those shares on T+1 or T+2 days. In this trading system, the trader uses short-term volatility as the opportunity to make some profit. By using this option, the trader can sell the share he bought earlier but not yet delivered or not credited in his Demat account. Once the seller sells the shares, they get their money within T+2 days, which means two days after the selling equity shares. And the amount (earned gain\loss) credited to their Demat account. It is not a regular trade. It can be a helpful way to do trading for those traders who are willing to sell out their shares before the delivery of the shares they have purchased.
How Does Buy Today Sell Tomorrow Trade Work?
Under the Buy Today Sell tomorrow trading option, the seller can sell out the shares not credited yet in their Demat account. All they need to do is use BTST trading and find buyers for the same. However, they can not take any privileges. They can avail themselves in regular trading to take advantage of unique scenarios. Although, if the received order is a CNC order, in this case, the seller is allowed to sell their shares and earn some profit.
Is BTST Trade Risky?
Almost every trading option in the share market comes with some risks which can be prevented by making wise decisions but can not be eliminated permanently. The same applies to BTST trading as well. When you sell the share, you have bought recently but are not yet credited to your account. You are entirely relying on the seller of the share from whom you are buying the same. If he defaults on the transaction, i.e., a short delivery, you will be obligated to further loss. If you don’t meet the requirement to sell the shares, it will cause you up to 20% loss as the action penalty.
Features of BTST Trade
Let’s lookout at the features of the Buy Today Sell Tomorrow trade for better understanding. Because if you understand it correctly, then you can use this trading to earn some decent profit.
It is the trading where you can sell the shares which are not credited yet to your account. And this option will be available only for the 2days from the date of purchase, and on the 3rd day, you won’t be able to take advantage of this trading system. However, you get the option to proceed with the usual trading options to sell the shares you have purchased in the share market.
It is a good feature for the traders but is available on few broker platforms.
You can use this option only if the share broker approves the broker. You can use ICICI Direct for using the BTST stock selling option from your Demat account.
If you have shares of SME companies, you can not use BTST options as most trading platforms do not provide them.
Also, this option is not available for the stocks that fall in the T2T segment. For this, you need to get the delivery of the shares to start selling and earning profits.
Advantages of BTST
There are some advantages of BTST stock trading, and below I have mentioned some of them.
If you want to get some advantage from short volatility, then you can use BTST stock trading.
Also, this type of transaction does not affect any debit transactions of your Demat account.
Many times intraday trading can be unprofitable. Therefore you can use BTST, which gives you two days to earn some profits.
Disadvantages of BTST
Every trading option has some disadvantages, and we all can see the same with BTST as well. Let’s see the disadvantages of BTST stocks.
If you use BTST, then you need to pay every charge incurred in the process. Unlike intraday trading, you do not get any facilities from the stockbrokers as none of them offer margin.
You also need to bear the penalties that can occur if the seller of the shared default does not have any reason. For example, assume you have purchased the 1000 shares of XYZ company and the same you utilized for the Buy Today Sell Tomorrow trading. Now you can’t meet the requirements to perform the BTST trading; therefore, the exchange will put on you some penalties, which can be up to 20% of the amount of the shares you decided to sell.
Conclusion
Many traders use the BTST trading facility to earn more profit and take advantage of the stock market upward trends without affecting debit transactions of the account. You can also use the Buy Today Sell Tomorrow trading system, but you need to buy the shares from a reliable seller who does not default. Because if he defaults, then you will have to face the loss and expenses that occurred in this process. However, when the seller defaults you and does not meet the requirement, the exchange puts a 20% penalty. However, in some scenarios, it varies from 1% to 2% only. So, it is a sound system offered by share brokers, but you need to decide wisely to keep yourself profitable.