What Is the Buy Today and Sell Tomorrow (BTST) Trading Strategy?
When researching trading mechanisms, you might have come across the term BTST. It is a popular trading mechanism that short-term traders generally use. Keep reading to learn about this strategy in detail.
What Is the BTST strategy?
BTST stands for ‘Buy Today and Sell Tomorrow’. It is a trading strategy in which traders take advantage of the volatility in share prices by buying them on a specific date and selling them off the next day.
When you buy or sell shares, it takes T+2 days for your transactions to reflect on your Demat account. Here, T stands for the day on which you conducted the trade. Thus, there is a time gap before the shares get debited or credited to your account.
So, during these two days, you can sell your holdings and profit from the price fluctuation if there is an appreciation in share prices. Let’s understand this better with the help of an example.
Suppose you bought 100 shares of ABC Ltd. trading at ₹1,500. The next day, you notice that the share prices have risen to ₹1,700 and sell them off to gain profit. Now, as it takes T+2 days for transactions to reflect on your Demat account, you secured gains from your investment even before it credits to your account.
How to Use the BTST Strategy?
You can use the BTST strategy in the following ways:
Investing Before a Big Event
Generally, any big social, political or economic event affects the stock market. It can be a change in the Reserve Bank of India’s (RBI) policies, excellent financial performance by a company, mergers and acquisitions, political events etc. So, you can plan your BTST trades accordingly to take advantage of price fluctuations due to these events.
You should add a stop-loss before executing your BTST trades. It will help you prevent losses in case your strategy fails.
Purchasing Stocks with High Liquidity
When you plan on using BTST, you should go for stocks with high liquidity.This will ensure that you get a timely exit without any impact cost whatsoever.
Using Candlestick Chart Analysis
You can use the candlestick chart analysis to analyse a stock’s opening and closing prices and the highs and lows. It will help you identify potential opportunities for using the BTST strategy.
According to market experts, most price action happens after 2:00 p.m., which is the last hour of a day’s trading session because intraday traders generally settle their trades during this in the last hour of the trading session.
So, observing a stock’s upward price movement from 3:00 p.m. to 3:15 p.m. indicates that the price trend may continue the next day. Under such circumstances, you can hold those shares to implement BTST trading.
What Are the Advantages of the BTST Strategy?
The ‘Buy Today and Sell Tomorrow’ trading strategy has the following benefits:
- It provides an opportunity to leverage short-term volatility in share prices to earn profits.
- Acts as a good alternative for intraday trading.
- Serves as a great strategy for short-term traders.
- Do not incur debit transaction fees in your Demat account because the selling of shares happens before being deposited.
What Are the Risks Involved in BTST Strategy?
Apart from all the benefits, there are certain risks to this strategy that you need to be aware of:
- The price increases that you notice during the end of the trading session might be due to knee-jerk reactions. This trend may not sustain the next day.
- In 2020, the Securities and Exchange Board of India (SEBI) made it mandatory for investors to pay at least a 40% margin (20% for buying, 20% for selling) before executing a trade using BTST.
The ‘Buy Today and Sell Tomorrow’ strategy has benefits and risks. However, before implementing, you must conduct a detailed analysis. Furthermore, if necessary, you can also take the help of a financial professional.
Frequently Asked Questions (FAQs)
What are the auction penalty charges in BTST?
In ‘Buy Today and Sell Tomorrow’, the auction penalty charges can vary from 0.5-1%. They are applicable in case you fail to deliver stocks in time.
What is the ideal time of the day to buy BTST stocks?
According to experts, the ideal time to buy BTST stocks is 30 minutes to 1 hour before the stock market closes. Of course, it would help if you sold them off at the earliest the next day.
What is the difference between STBT and BTST?
STBT stands for ‘Sell Today, Buy Tomorrow’ while BTST stands for ‘Buy Today, Sell Tomorrow’. You can use the BTST strategy in both spots and futures and options markets.
Can I use the BTST strategy for all kinds of stocks?
No, BTST trading is allowed for stocks that are not under Graded Surveillance Measures (GSM) and Additional Surveillance Measures (ASM).