Understanding BTST Trade in Stock Market: In the stock market, you can come across various types of traders. These traders use different trading styles and strategies based on the knowledge and conviction they have of the market. As different traders have different trading processes and what works for one trader might not work for the other.
Thanks to financial innovation over the years, one can come across different categories of trading in the stock market. The different types of trading strategies can fulfill different types of trading goals based on their view of the market.
Trading can be categorized into various types based on the time period like intraday trading, options trading, buy today sell tomorrow (BTST), sell today buy tomorrow (STBT), swing trading, positional trading, etc.
In this article, we will explore the trading concepts known as BTST trade in the stock market i.e. Buy today Sell tomorrow. In addition, we’ll also look into what is STBT (Sell tomorrow, buy today) concept is.
What is BTST Trade in Stock Market?
As the name suggests, it is the trading strategy wherein, you buy the stocks today and sell them tomorrow. Unlike taking a long position and holding it for a while, the traders sell these stocks on the very next day of the purchase.
This type of trade can be done by purchasing shares in the cash segment or in the derivative segment. This position is taken up by traders who expect the stock to trade at a higher price on the next day than it is today.
Is BTST Trade in Stock Market Similar to Intraday Trading?
While executing intraday trades, shares are bought and sold on the same day.
On the other hand, while executing BTST trades, shares are bought on the first day and sold on the next. Therefore, the terms intraday trading should not be used interchangeably with BTST trades.
How does BTST Trade in Stock Market Work?
Suppose you buy shares of a company in the cash segment. These shares get deposited with your depository participant and you receive these shares by the end of T+2 days in your account. Now if you sell these shares before the settlement date, it would be considered a BTST trade.
Executing BTST Trade in the Cash Segment
Let us understand this with help of an example:
Suppose you buy 1,000 shares of company X for Rs 1,000 each on Monday and the shares will be credited to your account at the end of Wednesday (T+2). On Tuesday, the stock price rises to Rs 1,100 and you decide to sell those shares and book profits.
Here, you had taken a delivery position and the settlement date for your buy order was Wednesday. Since you sold off your position before receiving those shares in your account, it will be marked as an upcoming obligation that will be settled by the broker on Thursday. This is how a BTST trade is executed in the cash segment.
Executing a BTST Trade in the Derivative Market
Executing BTST trade in futures and options segments doesn’t involve the process involved in the cash segment. It is traded like how futures and options are normally traded, provided you sell them the next day of buying.
It should be also noted that, while trying to execute a BTST trade in the cash segment, you should not buy stocks that are in the Trade to Trade segment as BTST trades are not allowed in those stocks.
Note: Trade to Trade is a segment wherein shares can be only traded on a delivery basis. This means that you can only sell these stocks after the settlement period (T+2).
Advantages of Trading in BTST Trade in Stock Market
- The benefits of short-term volatility can be enjoyed in BTST
- In BTST trades, the shares are sold before they are deposited in your Demat account. Hence, Depository Participant charges will be avoided.
- If your trades intraday do not go right, you can convert it to a delivery position and execute a BTST trade.
Disadvantages of Trading in BTST Trade in Stock Market
- BTST does not have a margin facility like intraday trading and the customers have to carry out orders under Cash N Carry (CNC) which is also known as delivery trading. Here you need to pay the entire amount in order to acquire the shares
What is Sell Today Buy Tomorrow (STBT)?
As the name indicates, it is the reverse strategy of BTST Trades. In the STBT trading strategy, you sell the stock today and buy them tomorrow.
Unlike BTST trades which can be traded through cash or future and options segment, an STBT position can only be taken through a futures and options segment. This is because short selling is not allowed in the equity segment of the stock market. An individual can only sell the stocks if they are held in the Demat account.
In simple terms, STBT is carried out just like any other futures & options trade, provided you buy it on the first day and sell it on the next.
Why are BTST/STBT Trades Carried Out?
BTST/STBT trades are carried out by traders when the markets expect good/bad news or when markets are highly volatile.
When markets face these conditions, they are expected to give a gap up or a gap down opening and go sideways throughout the day. In such cases, BTST/STBT can give higher returns than intraday trades.
Is BTST Trading Profitable?
As mentioned above, since STBT/BTST trades are carried out when a huge movement is expected in the market, thus STBT/BTST trading can be highly profitable. But at the same time, there are also chances of market moving against your direction. Hence, individuals should properly manage their risk while executing this trade.
Also Read: How to Calculate Profit in Options Trading?
In this article, we discussed what are BTST trades in the stock market. In short, BTST is the trading strategy wherein, you buy the stocks today and sell them tomorrow.
Further, as the stock market is an unpredictable place, no one can surely predict the movement of the market. Hence, it is important for traders to always have a stop loss while carrying out their trades so that they do not get trapped in the market when markets go against their expectations.