What is BTST and STBT in trading

If you are a beginner trader, then we are assuming that

you only use these 2 trading methods of intraday and delivery.

• Biggner trader 
• Intraday 
• Delivery 

But do you know that many traders also follow this third trading strategy?

The traders who want to earn trading gains by taking short-term or overnight risks, this trading strategy is for them.

 
READ MORE =What is futures trading and how does it work

introduction 

• BTST TRADES

Yes, I am talking about BTST trades,

i.e. buy today, sell tomorrow trades.

In this strategy, traders sell the shares

before the delivery of the purchased shares

and earn profit in the meantime.

Or in its alternative,

sell the stocks and buy them before the delivery

and earn profit from the gap down of one day.

This strategy is called STBT i.e. sell today, buy tomorrow.

Do remember that this is not short selling,

it is a different concept.

So today we will talk about this same trading strategy,

that is BTST i.e. buy today, sell tomorrow.

This is an easy strategy for advanced traders,

but new traders are a little confused about BTST

in terms of risk, margins and penalty.

So, in this blog, we will discuss

Table of contents 

1.  What is BTST trading with an example 
2. BTST trading advantages and disadvantages 
3. BTST trading risk 
4. BTST trading guidelines 
5. Explain Auction Penalties
6. BTST VS STBT 
   
7. BTST or intraday, which is better 

1) what is BTST trading with an example 

So, in simple words, you buy a stock today and sell it tomorrow morning. So, your objective is to earn the gains in the gap-up. To understand academically, BTST is a trading strategy used by traders to capitalize on short-term volatility. Through this strategy, traders sell the purchased shares in their DMAT account before they are credited. Normally, when you use the equity delivery order to purchase the shares, then those shares come to your DMAT account

after the T + 2 period. Here T represents the trading day, that is, the day when you have exchanged or bought the shares. So, in this T + 2 period, the seller is also credited his own amount.

From here, you can understand

that until the shares are physically transferred to the DMAT account, both the sellers and buyers have a waiting period. Let's understand from an example. Let's say a trader purchase 100 shares of ABC, whose share price is Rs.200. In the next trading session, that trader sells those shares for Rs.250 per share. That is, the trader buys shares of Rs. 20,000 and sells those shares for Rs.25,000, which gives that trader a profit of Rs.5,000. But the best thing is that this profit of Rs.5,000 has already been realized by the trader before the delivery of the shares. In the same way, through BTST, traders can quickly book their profits and use them for additional transactions

2) BTST trading advantages and disadvantages

advantages

Now let's understand the advantages and disadvantages of BTST.

There are many advantages of BTST trading.

For example, through BTST,

you can book profits through short-term fluctuations in the stock. And since there is no requirement for DMAT delivery in BTST, you do not need to pay any DMAT transaction fees. In addition, if you do not profit from intraday trading, you get an extra day in BTST, which allows you to manage your positions better

disadvantages

Let's talk about the disadvantages of BTST.

Mostly brokers do not provide you with a margin facility for BTST services.

It means you have to pay extra cash for all orders and cover the full cost of that trade. On the other hand, some brokers give you a margin, but according to the new BTST rules introduced in 2020 by SEBI, this margin payment is up to 40%, which is higher. The risk of short delivery is also connected to BTST.

How?

Well, let's say you buy shares today and sell them the next day. But the trader you bought those shares from, if he can't deliver the shares to you for any reason,

what will happen?

For sure, the seller will also be lost from this transaction because the stock exchange will auction those shares and put a penalty of 20% of share price on the seller. But in this whole process, you will also receive shares on T + 3 days. One limitation of BTST trading is that due to the market's instinctive reaction, share prices increase at the end of the trading session. But many times, this momentum cannot continue the next day. That's why you have to closely monitor your trades, set stop losses, understand the market dynamics before making any BTST trades

3) BTST trading risk 

What are the risks associated with BTST trading?

Well, traders who follow the BTST trading strategy are most cautious about short-term trading. They are concerned that if the market or any stock does not move according to their expectations, they will not be able to book a profit. Additionally, traders cannot predict whether their deal will be completed or not. If the seller does not deliver the shares by the next day, then the traders have to give a short delivery penalty on the basis of price movement and liquidity, whose amount is not set and which can go higher. In the auction procedure, you have to pay the differences between the selling price and price of stock paid through exchange. And this cost may reach up to 20%.

4) BTST trading guidelines

Now let's discuss some common strategies, methods and guidelines

that are usually used for profitable BTST trading. The first one is price breakouts and candlestick charts. To find BTST shares, usually a 15-minute candlestick chart is a useful tool that shows you the opening, closing, high and low prices of the shares. At the end of the trading session, i.e. after 2 pm, the most price fluctuations are seen because intraday traders are liquidating their holdings or BTST traders like you, start buying. If any stock prices break their resistance level between 3 pm and 3.15 pm, then this indicates an upward trend for the next trading day. And you can select such stocks for BTST trading. Establish a stop loss. While taking the BTST approach, despite the potential for attractive gains you should be cautious. So, it is very important to make a stop loss. So, you should not have hefty losses in any unforeseen events. Trade ahead of Big Event, Business announcements, election results, RPI policy releases, quarterly results, updates. Many such events create opportunities for BTST trading. Because in such situations, markets are in a volatile phase, and you can immediately see fluctuations in the company's share prices. Trade in selected highly liquid stocks. In BTST, you have to closely monitor the stock price fluctuations. Therefore, it is advisable to select highly liquid stocks for trading, which trade at high volumes on a daily basis. So that you can easily get an exit from it. Do book your profits after reaching your goals. In the stock market, fear and greed are the two biggest obstacles for traders. Therefore, before trading, you are advised to decide your entry point and exit point. You should manage your greed and timely book profits at your target prices. Or in case of a worse scenario, you should respect your stop losses and exit from it. Lastly, the best time to purchase BTST trades is from 2 pm 3:15 pm. And exit from your position in the morning as soon as possible between 9:15 am to 10:30 am.

5) Explain Auction Penalties

Now let's know what the auction penalty in BTST is.

Basically, when you are unable to deliver the shares sold, you have to pay an auction penalty for this default. In the auction market, stock exchanges hold an auction and purchase your shares. The BTST penalty can be as high as 20% of the short-delivered stock

6) BTST VS STBT

The biggest difference between BTST and STBT is that you can buy stocks with more cash in the F&O section in BTST. But STBT trade is not possible in the cash section. Basically, you cannot sell cash stocks in STBT. Almost all traders in India accept BTST trading, but they do not prefer STBT deals

7)  BTST or intraday, which is better 

Now let's see if BTST is better for you or intraday trading.

Well, the answer depends on a trader's risk tolerance and confidence. In BTST, you can book profits with short-term price changes, but it also involves overnight risk. Also, under most recent SEBI regulations, you have to fulfill a 40% margin requirement for BTST trading. Additionally, like any other trading techniques, you should have a market dynamic, methodical approach, and risk understanding in BTST trading. So that was all that you needed to know before making your BTST trades

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