How Buy today sell tommorow market affects your profit or loss in the market
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What is BTST and How Can You Benefit from This Approach?
Over the last few years, the stock market has become exceptionally approachable. With innovative applications and online platforms offering easy access to demat accounts, investing in the stock market is no longer a dream for people, especially millennials with high earning power and disposable incomes. People have begun investing in stock markets with the aim of participating in the growth of the economy, instead of spending all their money on lifestyle products. This decisive shift towards investing and trading is here to stay and as more and more people look at the stock market as a reliable source of income, there are many trading strategies coming to the fore. One of the most popular and widely used strategies is BTST or Buy Today Sell Tomorrow. Let us take a look at what this strategy involves and how you can benefit from this approach.
What is BTST?
Traders following the BTST approach are focused on leveraging short-term volatility by purchasing shares today and selling them tomorrow. In the BTST approach, the underlying belief is that the prices of the shares will, definitely, rise the next day, allowing the trader to book a healthy amount of profit. When traders follow the usual equity purchase style, their orders are delivered to the demat account in T+2 days, which means they receive ownership of the shares within two days from the date of purchase. However, since BTST follows an approach where the purchased shares are sold the very next day, this facility allows traders to sell the shares even before they are actually delivered into their demat accounts.
BTST helps you leverage volatility optimally as, if you follow the normal trade route, you wouldn’t be able to sell your shares and make profits from one-day price fluctuations. Using the BTST approach, you can sell your shares even before they are credited and, thereby, stand to make returns from the volatility in short-term price movements.
How You Can Benefit from BTST
The biggest reason why traders follow the BTST approach is the opportunity to make profits from volatility. You can stand to make tremendous returns through BTST if you follow the approach during a bull market, wherein prices are moving upwards every day. You can stand to make gains when your speculation pays off and, if you choose fundamentally strong or trending stocks, chances are high that their prices will only rise higher the next day, especially during a bull run. You can also benefit from BTST trades as they do not require you to pay demat debit transaction charges because the shares are not, actually, credited to your demat account. This helps increase your profit margin.
The BTST approach also acts as a good strategy when you are not sure of the potential movement in prices because you are not forced to sell your shares if your bet does not pan out. If the intra-day trading opportunity does not appear profitable, the BTST strategy allows you two more days to wait for price improvement. If that also doesn’t work in your favour, you can hold the purchased stocks in your account just the way you hold normal stocks and wait for the prices to rise on a later date. This ensures that you can sell your position for a profit, leveraging short-term volatility, or hold on to it for longer if your speculation does not offer positive results.
Risks in BTST Approach
Like every trading approach, the BTST approach also has some risks which you should be aware of. The biggest disadvantage of the BTST approach is that most stock brokers do not offer you the margin facility if you choose this trading strategy. This means that you have to pay the full amount, at the time of trade, as the BTST orders are executed in cash and carry format. There is also a possibility of short delivery risk during BTST trading. For instance, if you purchase 100 shares of Tata Steel today, in the BTST approach, and sell the same tomorrow for a neat profit, you will be expected to deliver the shares to the new buyer. However, if the initial seller, the person who sold you the stocks yesterday, does not deliver them to you by the time you sell it forward, both you and the previous seller will be penalised by the exchange. This penalty could be up to 20% of the value of the shares and you will be forced to take on the resultant loss.
If you are bullish on the market and believe that your stock picks will indicate high profits the very next day, the BTST approach is well suited for you. As long as you have money to spare and a high risk appetite, you can use this strategy to trade successfully and earn unprecedented profits on a daily basis.
Frequently Asked Questions
How is BTST different from regular delivery-based trading?
In BTST, you sell the shares before they are delivered to your Demat account, whereas delivery-based trading requires you to hold the shares in your account before selling them.
What are the advantages of BTST trading?
BTST allows traders to capitalize on short-term price movements without waiting for delivery, offering the potential for quick profits and reduced holding costs.
Are there any risks associated with BTST trading?
Yes, BTST involves risks such as price fluctuations between purchase and sale and the possibility of auction penalties if delivery fails due to short-selling or stock unavailability.
Which stocks are suitable for BTST trades?
Stocks with high liquidity and stable price movements are typically preferred for BTST trades to minimize risks and ensure smooth execution.
Do BTST trades attract higher brokerage charges?
Brokerage charges for BTST trades depend on your broker’s fee structure. Some brokers may categorize BTST as intraday trades, while others may apply delivery trade charges.
Is there a tax implication for BTST trades?
BTST profits are subject to short-term capital gains tax, as these trades are not considered intraday but involve holding shares overnight.
Can BTST trades fail during settlement?
Yes, BTST trades can fail if the shares are not delivered to your broker from the seller’s account, leading to auction penalties and losses.
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