BTST stands for Buy Today Sell Tomorrow.
In India, we have to follow a T+2 settlement cycle in capital markets. Stock purchased on Monday, will get delivered to the demat account on Wednesday.It does not mean that we can sell the stocks until it’s delivered to our demat account.However we have the freedom to sell the stock before its delivered.
What is BTST 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.
Let’s understand how the process works with the help of an example.
Suppose you have Rs. 5,000 in your trading account. On Monday, you bought 10 shares of Adani Wilmar at Rs. 400 each amounting 4000 and on Tuesday you sold the 10 shares at Rs. 430 each.
Buy Value = Rs. 4,000/-
Sell Value = Rs. 4,300/-
The Rs. 10,000 in your account is blocked immediately on Monday towards the purchase of Adani Wilmar shares. This is settled to the Exchange on Wednesday (T+2 day).
On Tuesday, you sell the shares which you’re supposed get credited on your demat account on Wednesday but You’re allowed to sell the shares on the trading terminal since the delivery of Adani Wilmar shares is expected by Wednesday. Once these shares are delivered to the stockbroker on Wednesday, he marks it toward your upcoming obligation to give the shares, for which the sell was initiated on Tuesday and the sell transaction is settled on Thursday as per T+2 settlement cycle.
And if everything is executed properly:
Profit booked = Rs 300/-
Note:- In the example , the shares we purchased appreciate in value and we sold these shares to book profit from them, but we 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 only we are allowed to sell the shares and book profits.
Is there a risk to execution BTST trades?
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. 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. Source (motilaloswal)