Suppose Amazon is a marketplace where prices of products move on a real-time basis based on demand and supply. You placed an order for a washing machine today. Amazon is yet to deliver it to you.
Next day you find that the prices have gone up. You sell the washing machine to another buyer at an increased price even as delivery hasn’t happened.
Now Amazon will deliver the washing machine to you and you will deliver it to the new buyer. Even as you did not have the delivery of the washing machine, you still made money by ‘buying it today and selling it tomorrow’.
Play the same scenario in the stock market. Buying a stock today and selling it tomorrow without having it in your demat account is called Buy Today Sell Tomorrow (BTST) in the Stock Market.
When you buy a share in the stock market, it takes two trading days (T+2) to reflect it in your demat account. But opportunities wait for none. What if the stock moves above your buying price the very next day and you want to sell it right then?
If your broker offers BTST trading, you can do it even if the delivery of the stock hasn’t happened in your demat account. Aliceblue allows you to do BTST Trading Swiftly.
You get two trading days to execute BTST trade after the buy order. BTST trade lies between the intraday and cash market trades. In intraday trade, if you have bought a stock today at 10 am, you have to square off the position the same day before the market closes.
If your technical analysis indicates the prices may move further in the next day, you would want to hold it. But in delivery-based cash trade, you can sell shares only after it has been delivered to your demat account.
This process takes two trading sessions. A lot can happen in two days. It is to avoid delay of cash segment and same day settlement of intraday trade that the BTST trade has come into picture.
Apart from tracking the stock specific and broader news events, you should be well-versed in technical analysis to make money in BTST trades. It involves spotting the big price moves on trading charts. Besides, you must apply some trading strategies to avoid losses and keep a check on greed. Read on:
Price Breakouts in Candle-stick Charts
Run the 15-minute candlestick chart of the stock you have bought for the BTST purpose. This chart showcases the buying and selling trend based on opening, high, low and closing prices. You may track the stock since the morning, but the real action typically happens in the last leg of the trade after 2 pm.
This is when intraday traders settle their trades. If the stock price moves above its resistance level on the chart between 3 pm and 3.30 pm, it indicates the uptrend may go on to the next trade. This suggests you may hold it for the next session. If the price goes below its support level, it’s time to sell the stock in intraday trade itself.
Invest before a Major Event
BTST trades give you best returns when you plan it around a major news event. This could either be stock specific news such as corporate earnings, bagging a new project or a deal, merger & acquisitions and buyback and dividend announcements or political and economic events such as RBI policy, GDP data and election results. Deploying a BTST strategy right before a major event may bring attractive short-term opportunities.
Select Liquid Stocks
BTST trading should be done in highly-liquid stocks so that when you sell it, you find enough buyers instead of getting stuck in the position. Large-cap stocks and the ones part of the index are where you should hunt for BTST trades.
Note that stocks in the Trade to Trade group, GSM (Graded surveillance measures) or ASM (Additional surveillance measures) are not allowed for BTST trades.
Put Stop loss and Target Prices
As you decide on your BTST position, before executing the trade, you must put stop loss. This is the price point at which the sell order will get executed automatically. Stop Loss caps your losses.
For example, you expect a stock to rise, but it instead takes the opposite direction. To avoid your losses, you must have a price point (on the downside) beyond which you cannot bear the losses. This is your stop loss.
Similarly, you must fix a target price on the upside. Stock market is volatile. In seconds, there could be a trend reversal. Target price helps you keep greed at bay. If the stock has soared to your desired levels the next morning, you must book profits instead of waiting to fetch more returns during the day.
If intraday trading doesn’t suit your risk appetite, BTST gives you two more days to ride the price momentum.
You save on demat debit transactions since the delivery of the trade hasn’t happened.
It’s a dynamic world. What if the stock market takes a knee-jerk reaction to an unexpected event occurring after closing hours? Your losses are certain in that case.
BTST trades happen in the cash segment; hence brokers do not offer margin money unlike intraday trades.
From September 2020 onwards, market regulator SEBI has made it mandatory to deposit 40 per cent margin (20 percent each on buy and the sell side) to execute a BTST trade. Blocked funds may make you miss out on a better trade opportunity
Short delivery – If the original seller fails to deliver you all shares after T+2, he will be penalised while the exchange conducts an auction to deliver you the shares. Since delivery will get delayed, you will also fail to deliver the shares to the buyer of your sold shares. You will have to pay the penalty too.
Be it BTST or intraday, trading is a risky affair. Skills and high EQ – both are needed to play the game well. Understand all the risks, learn tricks to mitigate those and always be prepared for the worst.
The biggest risk with BTST is a lot can happen over the 17 hours after the closing and next day’s opening. If you are perpetually prepared to face negative consequences, you will surely make good money. A sound mind and a sharp strategy are key to profitable BTST trades.