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What is BTST trading in the stock market, and how can you profit from it?

Trading in the stock market is a whole different world compared to long-term investing. It requires you to time the market, keep track of ever-changing conditions, and adopt various approaches and strategies to benefit from short-term market fluctuations. One such trading approach is what’s called ‘buy today, sell tomorrow’, or BTST. Let’s understand what exactly BTST trading is and how you can use it to your advantage. 

Table of contents

1. What is BTST trading?

2. How does BTST trading work?

3. Best BTST trading strategies

4. What are the benefits of BTST trading?

5. Tips for successful BTST trading

6. What types of traders use the BTST trading strategy?

7. Frequently asked questions

1. What is BTST trading?

BTST is a trading approach that involves buying some shares of a company on a particular day (say, today) and selling them the next trading day (i.e. tomorrow). 

The crucial thing to note about BTST trading is that the shares you buy are sold before they are ever credited to your demat account. Instead of taking delivery of the shares you buy, the buy and sell trades are settled on a ‘net basis’, and the resulting profit or loss is reflected in your trading account. 

Let’s get a better understanding of how BTST trading works. 

2. How does BTST trading work?

In early 2023, the Securities and Exchange Board of India (SEBI) began implementing a T+1 settlement cycle in the country for share delivery, replacing the T+2 settlement cycle that was previously followed. This means that trades are now settled within 24 hours. For instance, if you buy shares of company A on Monday at 2:00 pm, they will be credited to your demat account by 2:00 pm on Tuesday. 

Now, if you’re following a BTST approach to trading, then this means that you will sell the shares you bought before the buy transaction is reflected in your account. Let’s understand this with the help of an example. 

  • You want to buy 100 shares of company A, which are trading at ₹100 per share on Monday, because you believe their price will go up.
  • You place a buy order at a certain time (say, noon) on Monday, which is day 1.
  • The order is executed, and you are now the owner of 100 shares of company A. But because the settlement cycle is T+1, those shares have not been credited to your demat account yet. 
  • On Tuesday, which is day 2, you decide to sell the 100 shares, since they are now trading at ₹110. 
  • You place a sell order before noon on Tuesday, and thereby complete the BTST trade — buy today, sell tomorrow. 

In this trade, you never took delivery of the shares. Instead, the profit you made due to the price fluctuation, which works out to be ₹1,000, is credited to your trading account. 

3. Best BTST trading strategies 

Now that you know what BTST in the share market refers to, let’s look at some of the best BTST trading strategies.

3.1 Invest before major events

The stock market is volatile partly because share prices are impacted by a range of economic, political, and social events. You can benefit from this volatility by ensuring that you track such events and invest in specific companies before major events that are likely to have an effect on their share prices. 

For instance, the stock price of a company tends to increase when it posts favourable quarterly earnings or when it launches a new product or service. The prices of certain stocks can also increase when central banks make changes in the monetary policy,  So by planning your BTST trades according to such events, you can profit from short-term price fluctuations. 

3.2 Pick liquid stocks

For BTST trading, it is essential that you pick stocks that have sufficient trading volume and liquidity. This is important so that you can exit your position the next day without the risk of order slippage or a high impact cost (i.e. an unfavourable price for large orders). 

To identify liquid stocks, you should look at the average daily trading volume, market capitalisation, and bid-ask spread. 

3.3 Place a stop-loss and target price 

When conducting BTST trades, it’s helpful to place a stop-loss and target price in order to limit potential losses and manage risk. A stop-loss is a predetermined price at which you will automatically exit the trade in case the price moves against your expectations and your strategy fails. 

Conversely, a target price is a predetermined price level at which you will automatically exit a trade and secure profits. Hence setting a target price allows you to book profits instead of potentially losing out on them in case of a price reversal. 

3.4 Analyse candlestick patterns 

Since timing the market is crucial in BTST trading, analysing candlestick charts is a good idea. By using candlestick chart analysis in combination with market news, you can identify potential buying opportunities and come up with your BTST strategy. 

Such an analysis will let you identify trends in the price movement, as well as potential price reversals or continuations. 

4. What are the benefits of BTST trading?

There are several benefits of BTST trading for short-term traders. These include:

4.1 Potential for quick profits

BTST trading allows you to benefit from short-term price movements and trends, and to book profits at the end of a brief holding period. Hence, compared to traditional long-term investments, BTST trading allows you to realise profits a lot quicker.

4.2 Benefitting from overnight news

Stock prices fluctuate in response to significant news, economic events, corporate announcements, and more. If some major piece of news is expected to come out overnight, you can use BTST trading to try to capitalise on it by buying the relevant stock in advance and selling it once the news is out. 

4.3 Flexibility in trading

BTST in trading offers flexibility to traders through increased trading frequency and allows you to make better use of your capital. It allows you to adopt a more active approach, and you can recycle your capital more frequently since you do not have to wait to take delivery of the shares. This way, you can use roughly the same amount of capital for multiple trades over several days, thus potentially earning more profits for a given capital amount.

Now that you know of all the benefits BTST trading has to offer, let’s discuss some tips that can help you make your BTST trading successful. 

5. Tips for successful BTST trading

Since BTST trading involves a relatively higher level of risk due to overnight exposure and a short holding period, it’s essential to minimise risk and have a clear BTST trading strategy in place. Here are some tips that can help:

5.1 Research and analysis 

Before you use the BTST approach to trade a certain company’s stock, it’s important to thoroughly research the company and the industry it functions in to understand what events are liable to impact its stock price. By keeping track of industry trends, earnings reports, and changes in regulatory frameworks, you will improve your odds of executing BTST trades successfully. 

5.2 Set entry and exit points

For trading strategies like BTST, it’s crucial to set entry and exit points, and to be clear about the price levels at which you want to execute your trades. As discussed above, setting stop-losses and target prices help reduce your risk. 

5.3 Liquidity considerations

Make sure to choose liquid stocks with high trading volumes for BTST trades. Liquid stocks make it easier to enter and exit positions without the risk of significant price slippage. Smooth execution of trades is essential in BTST trading, given the brief holding period.

5.4 Use technical analysis

Identifying potential entry and exit points and understanding price trends is crucial in BTST trading. Hence, make use of technical analysis tools like candlestick charts to make informed decisions. 

5.5 Stay disciplined 

When undertaking BTST trading, it’s important to stick to the trading plan that you have come up with using technical analysis. Avoid changing your strategy based on market noise, and desist from making impulsive decisions based on emotions. 

5.6 Constant monitoring 

BTST trading requires you to constantly monitor the market so that you can promptly respond to short-term trends. This is also why it’s essential to monitor overnight news, since such news might determine whether or not you sell a certain stock the next day.

6. What types of traders use the BTST trading strategy?

The BTST trading strategy is typically used by traders who want to capitalise on short-term stock market fluctuations. Such traders not only tend to have a certain level of stock market expertise and experience, but also a higher risk appetite. This is because BTST trading carries a higher level of risk, given the short holding period. 

Usually, traders who use BTST trading strategies also have a strong understanding of risk management and closely track the market. Hence, it’s typically experienced intraday traders and momentum traders who use BTST trading. 

This strategy is not used by investors who have a long-term investment horizon and are looking for long-term wealth building. Such investors typically follow the buy-and-hold strategy to benefit from capital appreciation over extended periods. 

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7. Frequently asked questions

7.1 Is BTST trading safe?

Compared to traditional long-term investing, BTST trading carries a higher risk. This is because of its short holding period, exposure to overnight risk, and the need to have a deep understanding of the market. Hence, only experienced traders who can constantly monitor the market and make use of technical analysis should consider BTST trading. 

7.2 Can I sell BTST shares?

Yes, you can sell BTST shares. In BTST trading, you buy shares on a specific trading day (say, today) and sell them on the next trading day (i.e. tomorrow). 

7.3 Is BTST in trading profitable?

Yes, BTST in trading can be profitable for traders who can capitalise on short-term market movements and manage risk well. However, like with all other trading and investing strategies, profits are not guaranteed in BTST trading, and it does come with a higher level of risk. 

7.4 Which stock is best for BTST?

Liquid stocks that have high trading volumes and stocks with frequent price movements are often preferred by traders for BTST. That’s because liquid stocks allow for the smooth and timely execution of orders, and stocks with higher price volatility offer the potential to earn quick profits.

7.5 What are the BTST fees?

BTST fees typically include brokerage charges, transaction charges, and other standard charges applicable for trades. The exact amount of the BTST fees will depend on the brokerage or investment platform you use. 

7.5 Is BTST eligible for dividends?

No, BTST trades are not eligible for dividends. Since you sell the shares the very next day in BTST trading, your holding period will not allow you to qualify for receiving dividends. 

7.6 What is the formula for BTST in trading?

There is no specific formula for BTST trading. The only thing you need to do is sell the shares during market hours on the next trading day before they get credited to your demat account.

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