An Overview of BTST Trading
The stock market is a public space where institutional investors and individuals come together to sell and buy stocks. In a traditional time, some individual stockbrokers sell the stocks at the physical location of a stock market. In contrast, nowadays, leveraging high-level technology, buying and selling take place online via secured web applications.
The stock is a financial medium that signifies ownership in a company and gives the stockholder a right to earn profit through dividends and capital gains. Therefore, stock prices tend to fluctuate as per the demand and supply in the market and market circumstances.
While there are numerous strategies to earn profit and stop losses in the stock market, there is one strategy of making a profit in a short time — the BTST trading method.
What is BTST Trading, and How Does it Work?
BTST — Buy Today, Sell Tomorrow is a strategy in the stock market that allows the trader to buy the stocks and sell them before the stocks are credited in the Demat account. BTST is only available when the trader buys stocks through CNC (Cash and Carry) products — equity trading.
In a standard delivery, the stock decision takes two days. It refers to the T+2 days delivery system, where T refers to the day the user trades, and it takes two days for the delivery. For instance, if the trader buys A company's stock on Monday, it will be credited to the trader's Demat account on Wednesday. If it is a holiday on Wednesday, the stock will be credited on the next working day.
In BTST trading, the trader can sell the stocks before they get credited to the account. Therefore, the trader buys shares on Monday and can sell the stocks on Tuesday.
The primary benefit of BTST trading is that the trader can earn a profit from short-term trading. However, there is a risk involved in BTST trading because the trader sells the shares before it gets credited into the Demat account; the trader needs to trust the stock seller. If the seller defaults and is unable to deliver the shares to the trader on the day of selling, the trader will bear the penalty charges, up to 20% of the stock value bought by the trader.
Key features of BTST trading
- The trader can sell the stock immediately the next day before the stock is credited to the Demat account. When the stock is credited into the account, the trader will be able to place regular selling transactions.
- Not all brokers are allowed to carry out the BTST trading method. It is only available for the scripts accepted by sharebrokers. For instance, ICICI direct enables users to carry out BTST transactions only on margin trading scripts, NIFTY, and NIFT Junior.
- T2T (Trade to Trade Segment) is not permitted to carry out BTST as in T2T is compulsory to take the delivery of the stocks to carry out any other transactions.
Brokerage Charges of BTST Trading by Top 10 Brokers
Various brokers charges differently and basis their Basic brokerage Plans, the list of Brokerage charged by the Top 10 Brokers would be discussed below
| Rank | Name of Broker | Brokerage Charges |
|---|---|---|
| 1 | Zerodha | Free |
| 2 | Angel OneFree | Free |
| 3 | 5Paisa | INR 20 per executed order |
| 4 | Groww | INR 20 or 0.05% (whichever is lower) per executed order |
| 5 | Kotak Securities | 0.25% |
| 6 | HDFC Securities | 0.50% |
| 7 | Axis Direct | 0.50% |
| 8 | Sharekhan | 0.50% |
| 9 | Motilal Oswal | 0.50% |
| 10 | ICICI Direct | 0.55% |
BTST Trading Advantage & Disadvantage
- The trader will be able to get dividends as well as hold the stocks before it gets credited in the Demat account.
- The trader allows keeping the stocks for more periods if the stocks aren't performing well in the market.
- The risk is almost zero if the trader chooses well-performed stocks.
- There are no Demat debit charges as BTST trading performed before the stocks credited in the Demat account.
- BTST trading allows two more days in case the trader didn't earn a profit from intraday trading.
- BTST helps the trader to improve the trading liquidity.
- BTST trading helps the trader minimize losses if the stock price starts falling after buying the stock.
- Brokers don't offer margin as BTST doesn't involve trading in cash-segment.
- SEBI has announced a compulsory deposit of 40% margin (20% on buyer and selling) to perform BTST trading w.e.f September 2020; thus, the blocked fund could lead the trader to miss the good opportunity.
- Short delivery and quick profit involve high risk. In case due to any certain event, if the seller fails to deliver the stock after two days of the trading, the seller and the buyer attract penalties up to 20% of the stock value.
What is the difference between BTST and Intraday?
BTST Allows you to sell the stock on the same day similar to the Intraday trade but there are differences between Intraday & BTST as mentioned below.
| Sr. No. | BTST Trading | Intraday Trading |
|---|---|---|
| 1 | The trader allows buying the stocks today and sale before the market closes or the next day. | The trader requires — sell the stocks on the same day the order has been done or convert it to delivery trade. |
| 2 | BTST allows the trader two days to sell the stocks before it gets credited into the Demat account. | The trader has only the day of trading to settle the trade |
| 3 | Brokers generally do not give any additional Margin (No Leverage)/td> | Generally, Brokers offer Higher margins for intraday trading. The broker gives from 5times to 50time margins. |
| 4 | Though if the seller didn’t deliver the share on time (before the share gets credited in the Demat account), both the seller and buyer attract penalties, but the seller pays a higher penalty amount. | There are no penalties involved as the trade is conducted on the same day. |
What is the difference between BTST and Delivery?
| Sr. No. | BTST Trading | Delivery Trading |
|---|---|---|
| 1 | An added advantage is offered to the delivery order in BTST trading, where you can sell the stock before it gets credited to your Demat account without attracting the Demat charges | Stock credited in the Demat account in 2 days after the trading processed. |
| 2 | BTST offers the same brokerage as delivery orders. Some companies like Zerodha offers FREE brokerage while other have different rates or percentage. As the stock gets sold before it is delivered to the Demat account it does not attract Demat charges | Delivery trades attract Demat charges in addition to delivery brokerage |
| 3 | There is nil margin in BTST trading. | There is nil leverage in delivery orders as well. |
| 4 | If the delivery fails due to any reason, there is a high risk for the sellers. | There is no risk in delivery orders as the stocks are credited in the Demat account first, and only after that, the trader can sell the stocks in the future. |
Conclusion
In the stock market, BTST is one such trading that offers the best return in a short time. The expert traders generally deploy the BTST trading method when they get a tip about any major news about the stocks company that could rise or fall the prices to get a good dividend amount.Even though the BTST trading method looks lucrative, it is advisable to carefully trade in the stock market and consult financial experts before trading in high volume.
Frequently Asked Questions:
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1. What is STBT trading? Is it offered in India?
STBT refers to Sell Today Buy Tomorrow, and it is opposite to BTST — Buy Today Sell Tomorrow. In STBT it allows the trader to sell the shares which the trader doesn’t own and buy them the next day.
STBT trading is not permitted in India.
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2. Does Zerodha offer BTST and STBT Trading?
Yes, Zerodha offers their traders BTST. However, Zerodha doesn’t provide STBT trading as it is not permitted in India.
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3. Does Upstox offer BTST Trading?
Upstox discount broker is no longer offering BTST trading on its platform due to the new margin policy issued by SEBI in September 2020.
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