In the dynamic and uncertain arena of the stock market, traders and investors are in a constant endeavor to make overnight profits. Buy Today, Sell Tomorrow (BTST) is one such trading strategy used in the Indian stock market, commonly with the hope of hitting the jackpot. It allows traders to hold a position overnight to sell it the next trading day. Though a rewarding strategy, it comes with its own set of risks and challenges.
What is BTST?
It is a trading strategy that prevails primarily in the Indian Stock Market, wherein an investor buys shares on a particular trading day and sells them the following day, anticipating a profit. They expect to take advantage of the short-term price movements or the overnight price movements; however, it is sold the following day irrespective of market conditions. It is different from day trading, where positions are squared off on the same day.
In BTST trading, traders do not take delivery of the share they purchase on that day; hence the shares will not be reflected in the trader’s Demat account. However, BTST traders need to maintain adequate funds in their accounts to cover the value of the shares they purchase. Usually, brokers inform the list of shares available for BTST trading on the day. The investors can place an order for the same, and they can be sold only the next day.
Things to Keep in Mind Before Entering BTST Trading
Are you excited about the possibility of making a huge profit overnight? Wait! Please keep these things in mind before making a move.
- Research and Analysis
Analyse technical indicators, company details, and recent news that can impact the overnight stock price variations.
- Risk Management
To manage potential losses, set a clear risk-reward ratio for every trade. Predefine the amount or percentage of your trading capital to invest in a single BTST trade. Setting up this margin beforehand can control the temptation to spend more.
- Ensure the Liquidity of the Stock
To ensure ease of buying and selling, choose stocks with high liquidity.
- Timing of Execution
Try to execute the BTST trading near the closing hours of the trading day to capture the price movements best.
- Use Stop Loss orders.
To avoid potential losses, implement stop-loss orders. So, If the stock price falls below a predetermined level, the order sells automatically.
- Stay informed
Be aware of the global as well the national level news and events that can impact the market movement.
Make sure to avoid trading pitfalls. If you are taking trading advice from a third party, ensure that they are SEBI registered.
Suggested Read: SEBI Registered Telegram Channels
How to Execute BTST Trading?
Now that you have learned in and out of BTST trading let us get into action.
- Create a Demat account and an online trading account
- Suppose you purchase shares on Friday
- These shares will be reflected in your Demat account on Monday (Since trading days are Monday to Friday and after Friday next trading day is Monday)
- These shares are assigned for delivery for sale executed on Monday.
- These allotted shares on Monday are debited on Tuesday
- Transaction is complete
Risks while Executing BTST Trading
BTST trading is an effective method to make huge profits within a short period. But with its perks, it comes with its risks. The key risk associated with BTST trading is price volatility. The price of shares you purchase can decrease overnight.
Another risk is the limited time for analysis. The trader will receive limited time after market closing and placing BTST trades. This can lead to hasty decisions without much analysis. A limited time frame also brings psychological pressure and anxiety to the trader, and he may make irrational decisions.
How to do BTST with a broker?
To do BTST trading, you need to buy the stock using the Cash and Delivery (CNC) product type and sell the stock the next day using the CNC product type. Brokers will take care of the transactions in the background. Customers do not have to go through any steps or allow approval specifically. The broker will take care of such complications.
BTST Trading vs Intraday Trading
BTST and intraday trading are short-term trading strategies in the stock market. However, they differ in their holding period and time horizons. Here are some differences between them:
- Time Horizon
Intraday trading involves buying and selling on the same trading day. BTST, on the other hand, buys stocks today and sells them the next day. Here, the trader holds the share overnight.
- Risk and Leverage
In Intraday trading, the trader closes the position by the end of the day. Hence, even if you lose money, there is a limit to the margin within the same day. But in buy today sell tomorrow, overnight market volatility can happen. However, along with the potential for loss, BTST also provides profit of higher margin.
- Margin Requirement
Intraday trading requires a lower margin as they close their position by the end of the day. In BTST trading, brokers may need additional funds to cover the potential risk.
- Brokerage Costs
Intraday traders may have to spend huge brokerage because of the frequent buying and selling on the same day. On the other hand, BTST traders execute fewer orders, and the brokerage will be less.
Frequently Asked Questions About BTST
Is BTST trading better than intraday trading?
Compared with intraday trading, you will receive an extra day while doing BTST trading. But without proper planning and analysis, an extra day is not going to make any difference.
Is BTST legal in India?
Yes, BTST trades are allowed by almost all traders in India, however, STBT (Sell Today, Buy Tomorrow) is not permitted.
What is BTST trading?
Buy today, Sell tomorrow is a trading strategy used in the stock market, where you purchase a share on one day and sell it on the following day.
