BTST Trading- Meaning, Working, Features, Charges, Pros & Cons

In the world of the stock exchange, there are some terms that should be in our memory, like answering “yes, Papa” to “Johny Johny”. Of the list of those many terms, the words ‘transaction date’ and ‘settlement date’ hold importance for us today.

You must have heard of T+1, T+2, and T+3. ‘T’ is the transaction date, and ‘T+n’ is the settlement date. Now transaction date is, as the name suggests, the date on which a trade is executed, whereas the settlement date is when you get the actual ownership of those traded shares. The date when they are transferred to your Demat account could take one, two or three days. 

As of today, the Indian stock market has a T+2 settlement day, which is soon expected to be down to T+1. By T+2, what I mean is if I buy shares on a Tuesday, my settlement day would be Thursday. 

Now, why are trade and settlement days so important for our discussion today? 

Well, what if we tell you that there exists a facility wherein, you could buy on a particular date and sell it on the next one? Yes, sell the shares even before the ownership is transferred to you. 

Today, we shall talk about BTST trading, an acronym for Buy Today, Sell Tomorrow. 

What is BTST trade?

As already mentioned, BTST stands for Buy Today, Sell Tomorrow, also sometimes called ATST- Acquire Today, Sell Tomorrow. 

If you buy some shares today and sell them today itself, then it is called Intraday.

If you buy shares today and sell them after you receive the delivery in your Demat account, then it is called a delivery order or CNC. 

A BTST trade comes somewhere in between intraday trading and delivery orders. BTST trading is when you buy shares today and sell them before you receive the delivery of shares. 

Let’s take the above example. I bought shares on Tuesday, and on Wednesday, the share prices soared. Now, I could book profits by selling them on Wednesday, but how am I going to do that if  I don’t have ownership of those shares yet? 

This is where the facility of BTST comes in handy. In this, you can sell your shares even before they are deposited in your Demat account. 

How does the BTST trade work?

When you buy n shares, what happens on the settlement date is that those n shares get deposited with your Depository Participant.

You receive those shares on T+2 days by evening after the markets close. But if you want to sell them off before that, you would have to do a BTST trade. Here is how you do it. 

Suppose on Monday, you buy 10 shares of HDFC bank for ₹1,500 each, so your total buy value is ₹15,000. On Tuesday, you see that those shares are trading at ₹1,600. You feel that you should sell those shares and book profits. Those 10 shares will be sold for ₹16,000. So, the settlement date for your buy order is Wednesday, and that of the sell order is Thursday. 

Now, here is how it happens. You will receive the shares in your account by Wednesday, which you are expected to deliver on Thursday because of the T+2 days, remember? 

Once you receive those shares on Wednesday, your stock broker marks it as an upcoming obligation that needs to be settled on Thursday. And thus, the BTST trade is executed. 

Do note that this example is completely hypothetical, and it is very unlikely that a stock price will surge so much in one day. 

BTST features

These are some of the features of the BTST trade.

1. In BTST, you have the option of selling shares that have not yet been received in your Demat account. You would have this option till the time you receive the delivery of shares, i.e. for two trading days. 

2. In the Trade to Trade segment (T2T), since the stocks are extremely speculative, BTST is not allowed. It is compulsory to place a CNC order.

3. The BTST facility is not provided by most brokers for SME companies.

BTST Charges

There are two ways in which BTST charges are applicable.

• BTST brokerage charges on the Trading day

If the buy and sell order of a particular stock is placed on the same trading day, it will be considered intraday trading, and accordingly, you will be charged as your stock broker allows.

• BTST brokerage charges on T+1 or T+2 days. In these cases, Equity delivery brokerage charges are applied. Some stockbrokers offer brokerage free delivery, while some may charge a defined BTST brokerage fee.

I realise stockbrokers play a very important role in such types of trades. It would be unfair if I didn’t nudge you in the right direction to compare your stockbrokers properly before opening an account with them. 

To your rescue, we have yet another gem. In Select by Finology, you can compare the stockbrokers, their account opening charges, maintenance charges, charges for equity delivery and for intraday, and so much more, all in one place.  

Advantages of BTST Trade

Trading in BTST has its own advantages. Here are some of them. 

1. BTST allows one to enjoy the benefits of short-term volatility of the stock market. 

2. Since shares are not deposited with the DP and sold before that, DP charges are avoided in BTST trades. 

3. In case you execute an intraday trade and think that it won’t be profitable by the time the market closes, you could convert it to BTST and have the option of selling it the next day. 

Disadvantages of BTST Trade

However, there are some risks associated with BTST trade. Here are a few of them.

1. In case you don’t receive the delivery of shares on the settlement date and consequently fail to deliver the shares for your sell order, a penalty is applied. Thus, it is important to check with the stockbroker about the penalty for short deliveries. 

2. If you don’t maintain sufficient balance in your account, a margin penalty may be levied on BTST transactions. 

3. Most stockbrokers do not provide the facility of BTST, and transactions are carried out under CNC. This may lead to paying the charges for CNC orders that vary from broker to broker. 

Conclusion

Okay, so, two questions. Johny Johny?
Was there a “Yes, Papa”? I’m hoping there was. 

Next, what is the settlement date for the Indian stock market?

I expect a T+2 right away!

Till we meet again. Happy BTST-ing and investing!