What is BTST and how does it work?

BTST stands for Buy Today Sell Tomorrow.

Indian capital markets operate on a T+2 settlement cycle. If you purchase a stock on Monday, it will arrive in your demat account on Wednesday. You can, however, sell your stock before it arrives in your demat account. Let's look at an illustration to see how the process works.

Assume you have 10,000 rupees in your trading account. You purchased 5 Reliance shares on Monday for Rs. 2000 each and sold them on Tuesday for Rs. 2100 each.

Purchase Price = Rs. 10,000/-

The selling price is Rs. 10,500/-.

The Rs. 10,000 in your account will be blocked on Monday for the purchase of Reliance shares. This will be settled with the Exchange on Wednesday (T+2).

You sell the shares that you're supposed to deliver on Thursday on Tuesday. Because the delivery of Reliance shares is expected on Wednesday, you are permitted to sell the shares on the trading terminal. When these shares are delivered to the stockbroker on Wednesday, he deducts them from your upcoming obligation to deliver the shares, and the sale is completed on Thursday.

Although the credit for the funds received from selling your stock is not received for another two days (Friday in the above scenario), we allow you to use 80% of the sale proceeds to purchase new stocks on the day of sale. On T+1, the remaining 20% becomes available for the purchase of new stocks (Thursday, in the above scenario). Continue reading to learn more.

Important: The risks of BTST transactions:

You might not receive the shares on Wednesday and thus fail to deliver the shares for your sell transaction. This may result in a penalty. Some BTST transactions may be subject to a margin penalty.