What is BTST Trade?
Some terminology from the world of the stock exchange, such as “transaction date” and “settlement date,” should be ingrained in our minds.
Surely you’ve heard of T+1, and T+2 by now. The transaction date is “T,” and the settlement date is “T+n.” As the name implies, the transaction date is the day on which a trade is made, and the settlement date is the day on which you actually acquire ownership of the exchanged shares. It could take one, or two days for them to be transferred to your Demat account.
Now, let’s consider why today’s discussion of trade and settlement days is so crucial.
What if we told you that a facility existed where you could buy on one day and sell it on the following one? Yes, you cal sell the shares even before they become yours.
The term “BTST trading,” which stands for “Buy Today Sell Tomorrow,” will be discussed today.
BTST Trade, which stands for Buy Today, Sell Tomorrow, has already been mentioned.
Where as Intraday trading refers to the act of purchasing shares today and selling them immediately after.
Delivery orders, also known as CNCs, are created when shares are purchased today and sold the following day after being delivered to your Demat account.
A BTST trade falls between between a delivery order and intraday trading. When you purchase shares today and sell them before receiving the shares in your delivery, this is known as BTST trading.
Consider the prior instance. On Tuesday, I purchased shares, and on Wednesday, they greatly increased in value. Now, I could sell them on Wednesday and record profits, but how am I going to accomplish that if I don’t yet possess those shares?
This is where the BTST facility is useful. You are able to do this even if the shares haven’t yet been placed into your demat account.
How does BTST trade work?
The capital markets in India operate on a T+2 settlement cycle. The delivery of a stock purchased on Monday to your demat account occurs on Wednesday. Even before your stock arrives in your demat account, you can still sell it. With the aid of an example, let’s comprehend how the procedure functions.
Consider that you have 10,000 rupees in your trading account. You paid Rs. 2000 on Monday to purchase 5 Reliance shares, and on Tuesday, you sold all 5 shares for Rs. 2100 apiece.
Buy Value = 10,000 rupees
Sell Value = 10,500 rupees
The Rs. 10,000 in your account is instantly set aside on Monday to be used to buy Reliance stock. The Exchange will receive a resolution on Wednesday (T+2 day).
You sell the shares that you’re meant to deliver on Thursday on Tuesday. Since the delivery of Reliance shares is anticipated for Wednesday, you are permitted to sell the shares on the trading terminal. The stockbroker will mark these shares toward your impending obligation to give the shares after they are handed to him on Wednesday. The sell transaction is then finalized on Thursday.
On Monday, the Rs. 10,000 in your account will be instantly barred for the purchase of Reliance shares. On Wednesday (T+2 day), this will be resolved with the Exchange.
You sell the shares on Tuesday that you are expected to deliver on Thursday. Since Reliance shares are anticipated to be delivered by Wednesday, you are permitted to sell the shares on the trading platform. This marks it toward your forthcoming obligation to give the shares, and the sell transaction is settled on Thursday after the stockbroker receives it on Wednesday.
You are permitted to spend 80% of the sale profits to buy new stocks on the day of the sale, even though the credit of funds from selling your stock is only received after 2 days (Friday in the example above). On T+1, the remaining 20% can be used to buy new stocks (Thursday, in the above scenario).
These are a few characteristics of the BTST trade.
- You can sell shares in BTST even if they haven’t arrived in your Demat account yet. You would have this choice for two trading days, or until the time you receive the delivery of shares.
- Since the equities in the Trade to Trade category (T2T) are so highly speculative, BTST is not permitted. You must place a CNC order in order to proceed.
- Few brokers offer BTST facilities to SME businesses.
BTST charges are mostly applied in two different methods.
- Brokerage fees for BTST on the trading day
You will be charged as your stock broker permits if you place a purchase and sell order for a certain stock on the same trading day, which is known as intraday trading.
- BTST brokerage fees on days T+1 or T+2. Equity delivery brokerage fees are incurred in these situations. While some stockbrokers may charge a set BTST brokerage fee, others may give brokerage free delivery.
Advantages of BTST Trade
The benefits of trading BTST are numerous. Here are a few examples.
- BTST enables one to take advantage of the stock market’s short-term volatility.
- In BTST trades, DP fees are avoided because shares aren’t deposited with the DP and sold before that.
- You might convert an intraday deal to BTST and have the option of selling it the following day if you think it won’t be lucrative by the time the market closes.
Risks of BTST Trade
However, there are several risks involved in BTST trading. Let’s look at a couple of them.
- If you don’t get your delivery of shares on settlement day and don’t deliver the shares for your sell order as a result, there is a penalty. It is crucial to ask the stockbroker about the fine for short deliveries as a result.
- A margin charge may be applied to BTST transactions if your account balance is insufficient.
- The majority of stockbrokers do not offer the BTST function; instead, transactions are completed through CNC. This could result in paying the CNC order fees, which vary from broker to broker.