What is BTST and how does it work?
BTST stands for Buy Today, Sell Tomorrow. The Indian capital markets follow a T+1 settlement cycle. For instance, if a stock is purchased on Monday, it is delivered to the demat account on Tuesday. However, the stock can be sold even before it is received in the demat account. To learn more about the settlement cycle, see What does settlement cycle mean?
Example scenario
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Assume a client has ₹10,000 in their Zerodha account.
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On Monday, the client purchases 5 shares of Reliance at ₹2,000 each, with a total buy value of ₹10,000. According to the settlement cycle, this trade will be settled on T+1 day, i.e. Tuesday.
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On Tuesday, the client sells the same 5 shares of Reliance at ₹2,100 each, with a sell value of ₹10,500 before the trade is settled.
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On Tuesday, the stockbroker allocates the received shares to the client's upcoming delivery obligation, and the sell transaction is settled on Wednesday.
However, the credit from selling T1 holdings (BTST trades) cannot be used on the same day as per regulations
(PDF).
To learn more, see
Why is the credit from selling T1 holdings unavailable for use on the same day?
The risks associated with the BTST transaction are that the client may not receive delivery of the shares on Wednesday and subsequently fail to deliver the shares for the sell transaction, which can lead to a penalty. To learn more, see What is short delivery, and what are its consequences?
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