BTST trading: Definition, Strategies, and Benefits

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Synopsis:

BTST means ‘buy today and sell tomorrow’. It is an effective trading strategy in the share market because it has advantages over intraday trading and regular trading. The main advantage of BTST is that it allows you to buy a stock today and sell it tomorrow even if it is not delivered to you..

Introduction

BTST in trading parlance means ‘buy today, sell tomorrow’. BTST trading strategy allows you to buy a stock today and sell it tomorrow. Needless to say, you will sell a stock tomorrow only if its price increases.

However, even if its price increases, you cannot sell it within a day of purchasing in cash trading. This is because in cash trading once you buy a stock, it is delivered to you in T+1 day. To deal with this limitation, BTST allows you to buy stock today and sell it tomorrow even before it is delivered to you.

Meaning & Definition of BTST Trading

BTST means ‘buy today and sell tomorrow’. In regular trading, suppose you buy a stock today, it will be delivered to you in T+1 day. Only when it is delivered that you can sell it.

If its price increases tomorrow, you cannot sell it in regular trading because it is yet to be delivered to you. Meanwhile, in intraday trading, you will have to square off your positions within the same today.

However, BTST allows you to buy a stock today and sell it tomorrow to take advantage of the price rise, which regular trading and intraday trading do not allow. Having learned what BTST means, let us dig deeper into it.

Strategies for BTST Trading

When using the BTST trading strategy, the first thing you should do is pick a liquid stock. As you will be selling a stock in a day, liquidity is important. Then, you should use a 15-minute intraday chart, which will help you spot movements in price. Ensure that the price is moving upwards.

You should always keep an eye on the volume of a stock. If the price rise is supported by a huge surge in the volume, then chances are high that the stock’s price will rise further. Meanwhile, you should also check whether the stock’s price is rising fast or slow. As you want to sell the stock the next day, you need the price to rapidly increase to make a decent profit.

You should also fix a stop-loss and target price. A stop-loss limits your losses and a target price helps you book a profit.

Advantages of BTST Trading

The main advantage of BTST in trading is that it allows you to gain from a short-term upward movement in the price of an asset.

You spot an upward trend and the next day you sell your stock to make money. If done well, it is rewarding in a short period.

Moreover, BTST in trading helps you deal with the disadvantages of regular trading and intraday trading. Regular trading does not allow you to sell a stock a day after buying it. Intraday trading makes it necessary for you to sell a stock the same day you bought it. BTST is somewhere between intraday and regular trading, which helps traders immensely.

Disadvantages of BTST Trading

  • BTST trading is subjective. You as a trader may say that a price has risen a lot; however, it is possible that another trader does not think so. Eventually, it may happen that the price rise was a false signal.
  • The other disadvantage is that not all stockbrokers offer the BTST service. So, before venturing into BTST trading, always ask your broker whether he provides this service or not.
  • The Securities and Exchange Board of India (SEBI) modified the rules a few years ago. As per this change, a trader has to pay a 40% margin before he executes a BTST trade. This is another disadvantage.

Risks Associated with BTST Trading

  • In BTST trading, you sell a stock before getting it delivered to your demat account. Essentially, you are short-selling a security. If the seller somehow finds it impossible to deliver the stock to you on time, then it will attract a penalty.
  • In such a case, a stock exchange will have to auction the securities to transfer them to you. Not only this will increase the time taken for the delivery of securities, but a penalty will also be imposed on you for not being able to deliver the stock to the final buyer. This is the biggest risk in this type of trading.

Tools and Resources for BTST Trading

You need to use 15-minute intraday charts for BTST trading to spot movements in price. Therefore, you should learn to use charting software. Such software makes these types of charts available, without requiring you to prepare them.

Then, you should use volatility indicators like Average True Range and Bollinger Bands. These tools will help you assess whether volatility in the price of a stock is sufficient or not.

You should also use trend analysis tools, which will help you assess the direction in which the price is moving. A combination of these tools and resources will help you benefit from BTST in your trading journey.

Common Misconceptions about BTST Trade

A common misconception about BTST in the share market is that it allows people to get rich quickly. If a BTST trade is executed successfully, it can help you make money. That said, you need to do a lot of research before executing it.

The other misconception is about how to execute a BTST trade. Like most trading strategies, BTST trading is subjective. Often, two traders do not execute a BTST trade in the same manner. So, you should always allow for some degree of subjectivity in it. Also, if you are following an experienced trader, try to think how you can tweak his strategy based on the situation.

BTST Trading vs Other Strategies

 

BTST Trading

Intraday trading

Long-term trading

Trading strategy

You buy a stock today and sell it tomorrow while using BTST strategy in the share market.

You buy and sell a stock within the same day.

You buy and sell a stock within a few months or a few years.

Risk

BTST is less risky than intraday trading but riskier than long-term trading. As BTST does not require you to buy and sell a stock within the same day, it is less risky than intraday trading. But, it requires you to buy a stock today and sell it tomorrow. And, it can be risky if tomorrow the stock price does not increase.

This is the riskiest of all the three strategies because you have to buy and sell a stock within the same day. For example, once you have bought a stock, you may not get the right opportunity to sell it even if you are a smart investor. Unless you are very sharp as an investor, you should not do intraday trading.

This is the least risky strategy because there is a gap of a few months or years between buying and selling a stock. If the stock’s price has not risen enough after a few months, you can wait for a few more months for it to rise.

Type of investor needed

You have to be an aggressive investor and you have to follow the market thoroughly so that you do not miss a trading opportunity.

You have to be aggressive as an investor. This is because once you have bought a stock, you may get a trading opportunity within a few minutes. So, you need to follow the market minute-by-minute.

As buying and selling happens over months or years, you do not have to be very aggressive. However, you should not be entirely passive.

How to Start BTST Trading

To begin BTST trading in the share market, the first thing that you need to do is start a trading account, in case you do not have it. Then, you need to thoroughly learn the fundamentals of BTST trading. Spend as much time as you want while learning the concept of BTST.

Then, you need to figure out liquid stocks. By this, we mean stocks that have many buyers and sellers. Keep in mind that BTST requires you to sell a stock a day after buying it. If you do not have an adequate number of sellers the next day, you may not be able to sell it.

After this, you need to learn how to use 15-minute intraday charts, volatility indicators (average true range, etc.), and trend analysis tools to execute BTST trades successfully.

Conclusion

BTST means buying a stock today and selling it tomorrow. It can be extremely rewarding for trades that are executed over a short period. That said, if you do not end up making money, it can be frustrating as well. Therefore, you must learn how to execute BTST trades thoroughly.

Before you start making such trades, you need to have a firm grip on the fundamentals. You can even discuss any doubts with experienced traders and only when you are confident that you should get into the market.

When you start trading, you should begin with small BTST trades first and see whether you have learned the concept well and are able to make money or not. Please do not think that the meaning of online trading is to get rich quickly. Instead, focus on learning the fundamentals well and then trade.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

Is BTST trading suitable for beginners?

Answer Field

BTST trading is suitable for only those beginners who understand its fundamentals well and who trade with small amounts. Like any other trading strategy, BTST's trading strategy can be quite risky. Therefore, first, you should learn how to execute such trades and then start with small trades.

How much capital is required to start BTST trading?

Answer Field

The capital needed for BTST trades depends on many factors, including brokerage fees of your broker, how much margin is required, and your risk tolerance level as a trader. Hence, there is no one answer to it, as it varies from trader to trader.

What are some common pitfalls to avoid in BTST trading?

Answer Field

Some people think that BTST trading is a quick way to get rich. The BTST trading strategy can help you make money in a day; however, to learn it, you may have to spend a lot of time. So, it is not a shortcut to get rich.

What are the key factors to consider before engaging in BTST trading?

Answer Field

You need to check whether the stock you have chosen is liquid. You need to check whether its price is moving upwards. Then, you need to ensure that it is moving upwards rapidly and not slowly. You should also have a stop-loss level and a price target in mind.

What is the concept of BTST?

Answer Field

BTST stands for buy today and sell tomorrow. As its full-form suggests, in this strategy, you buy a stock today and sell it tomorrow with an intention to make money. Therefore, you only buy those stocks whose price is expected to rise sharply.

What is the formula for BTST trading?

Answer Field

BTST trading does not have a formula. All you need to ensure is to buy a stock today and sell it tomorrow within market hours. This strategy allows you to sell the stocks before they are credited to your account so that you can capitalise on an upward price movement.

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