What is BTST Trade and How to Profit From It?

BTST stands for “Buy Today, Sell Tomorrow” which is a trading strategy that can be highly profitable to the traders when executed with proper strategies and risk management. The strategy implies buying a security on one day and selling the security on the next day, making potential profits. Let us know about the strategies and explore BTST Trading and its benefits.

What is BTST Trading?

Buy Today, Sell Tomorrow is a trading strategy where traders take advantage of short term volatility in the market by buying at a lower price today and selling at a higher price the following day. This is a settlement process which allows traders to sell the previously bought shares before they have been credited to their Demat account.

How does BTST work?

BTST comes in between intraday trading and cash/equity trading. You can execute BTST trading if your broker allows it. When you buy shares in the stock market, it takes T+1 day to reflect the shares in your demat account. Similarly, the seller receives the credit in the demat account after T+1 day.

In BTST Trading time lapse allows the traders to sell the securities even when the shares are not delivered in your demat account. While in cash trading, traders can only execute the transactions when they are delivered in your demat account from the exchange.

Let us consider this with the help of an example:

If you buy 100 shares of a company at Rs 150 and sell them the next day at the price of Rs 160, then the profit earned for a day is Rs 1000. The selling is executed in the subsequent trading session even before the delivery of shares in their Demat account.

However, it is mandatory for traders to maintain a minimum margin of 20% to avoid the margin shortfall. The transactions of buying or selling are only executed when minimum margin requirement is sustained. Therefore; in BTST trades when the stock prices increase, you can sell them for profit in cash.

Benefits of BTST Trading

Short term investors execute trades frequently which allows them to enjoy short term profits and does require them to wait too long. Let us know what more benefits BTST trading holds for short term investors:

Capitalizing Short Term Volatility

In BTST, traders are benefitted from short term market fluctuations and empower them to take short term trading opportunities and generate regular profits from them.

Flexibility

Picking short term trades enables the traders to not commit any long term investment holding positions and be flexible towards trading opportunities.

Reduced Holding Period Risk

Traders can gain profits in the short term and hence are not required to adhere to the risks of long term investments and market uncertainties. They can easily exit the trade in the short term realizing short term returns as well as avoiding long term market risks and other risks associated with a particular security.

Strategies of BTST Trading

To capitalize on short term market movements and market inefficiencies, these traders are required to follow some effective strategies for trading which could be:

Technical Analysis

To analyze technical chart patterns with demand and supply approach and understanding the price action based with regard to top down approach is essential for investors as well as BTST traders. Conducting technical analysis is essential to be a profitable trader. Through a demand and supply approach, you can identify the buying and selling pressure of an asset on lower time frames as well for overnight trades. GTF offers a well developed course on Demand and Supply approach and GTF Indicator increases the efficiency of your trades by marking demand and supply zones automatically.

Analyze Regular Price Action

For BTST traders, to understand and analyze regular market movements is very important. They can develop strong strategies when they are aware about the earnings of a company, and continuously monitor corporate actions like mergers or acquisitions, Stock splits or dividends. Regular volume analysis of the stocks helps overnight traders to stay a step ahead in the market.

Sector Rotation

Sector Rotation is a theory that implies the boom of a sector in the future wherein buy today sell tomorrow traders can take short trades to make profits. It is a strategy used in demand and supply theory which tells the downfall and upward movement of stocks as per the sector cycle in the economy. Sector support in a stock increases the possibility of surge in stock prices.

Also Read: Sector Analysis

Trend Lines

BTST traders make use of quick trend movements where an upward movement of the trend line supports the long positional trade. A change in the trendline depicts a change in price movement of the security.

Volume Analysis

When price action and top down approach with trend are in the favor of the trader’s positions, BTST traders execute their actions based on volume movements. If the volume of a trade becomes high, they make their position to make quick profits. 

Consequences of BTST Trading

Though there are several benefits of BTST trading, it holds several consequences which the investors should be aware of while taking appropriate and efficient risk measures to avoid losses. These are some of the consequences of BTST trading:

Market Risks

BTST traders are subject to overnight market risk as they are exposed towards the rescue of adverse news or events that can affect the stock prices leading to a significant price gap when the market opens.

Psychological stress

In this type of trading, traders have to deal with emotional stress by the pressure of a quick decision making process that can affect their mental health. Constantly monitoring the market and dealing with the stress can be mentally exhausting and time consuming which can lead to a negative consequence in the trading process.

Taxation issues

A large number of transactions might result in higher transaction costs including the fees of brokerage and commission. Moreover, short term capital gain taxes are higher which adds to the cost of short term trading.

Opportunity risk

A trader has to bear the opportunity cost at every step of trading and such trader has to bear the opportunity cost to miss out on a long term investment opportunity that could offer more substantial returns then short term trades.

Overnight Market Movements

Any kind of opposite overnight market movements due to geopolitical events, earning announcements, and macroeconomic data impact the working stock market and affect the portfolio of a BTST trader. 

In a Nutshell

As we have known from the blog that BTST trading means Buy Today Sell Tomorrow, it is a strategy to make short term profits from the market movements. However, when it’s done with technical analysis and a demand and supply approach, the efficiency of the trading is increased. You can learn all about technical analysis from GTF Trading in the Zone course which nourishes your trading skills.

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