BTST : What you need to be careful of!

Thursday, 22 September 2016

By Sunil

BTST refers to Buy Today and Sell Tomorrow - Trades where you buy shares and sell them on T+1 day or T+2 Day before the stock is settled & delivered into your DEMAT account. 

But here is something which you need to be careful of while executing this strategy in trading online.

Context: Cash Delivery Trades are settled on a T+2 basis in India. This means that if you buy delivery on Monday, then you have to pay the exchange on Wednesday and you will get the corresponding delivery on Wednesday after the payment. Similarly, if you sell delivery on Monday, then you have to pay the shares on Wednesday to the exchange and will get the corresponding payment on Wednesday after you have transferred the shares.

Risk Involved: You need to be careful of short delivery, i.e. the event in which the seller defaults on giving you the shares, your obligation as a seller to deliver shares won't be met and you will face the risk of auction penalty which can be up to 20% of the value of stock short delivered.

Illustration: Let’s say that you buy 100 shares of Reliance on Monday and sell those same shares on Tuesday. Theoretically, there is no problem with these trades as your shares will be paid out on Wednesday to you from the exchange and you will have to pay in those shares to the exchange on Thursday. Completely Fine.

However, If the shares you sell on Monday are NOT paid out from the exchange on Wednesday, that is there is a short delivery from the exchange, then you will not be able to pay in those shares on Thursday (for the selling trade on Tuesday). In that case, your delivery pay-in will be short to the exchange (for your selling trade) and the corresponding delivery will be auctioned at whatever price the exchange determines. More often than not, an auction results in a loss to the trader.

So traders need to be careful when buying today and selling tomorrow (BTST) in case of delivery as they are liable for any auction loss due to short payout from the exchange. This happens very rarely in blue-chip stocks but can happen more often in Penny and Trade to Trade stocks.

Have more questions? Feel free to reach out to our support team on call 011-40409999 or email support@sasonline.in.


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