What is BTST and how does it work?
BTST is an acronym for Buy Today Sell Tomorrow.
The Indian capital markets follow a T+2 settlement cycle. If you buy a stock on Monday, it gets delivered to your demat account on Wednesday. However, you can sell your stock even before you receive it in your demat account. Let's understand how the process works with the help of an illustration.
Assume you have Rs. 10,000 in your trading account. On Monday, you bought 5 shares of Reliance at Rs. 2000 and on Tuesday you sold the 5 shares at Rs. 2100 each.
Buy Value = Rs. 10,000/-
Sell Value = Rs. 10,500/-
The Rs. 10,000 in your account is blocked immediately on Monday towards the purchase of Reliance shares. This is settled to the Exchange on Wednesday (T+2 day).
On Tuesday, you sell the shares which you're supposed to deliver on Thursday. You're allowed to sell the shares on the trading terminal since the delivery of Reliance shares is expected by Wednesday. Once these shares are delivered to the stockbroker on Wednesday, he marks it toward your upcoming obligation to give the shares, and the sell transaction is settled on Thursday.
Although the credit of funds from selling your stock is received only after 2 days (Friday, in the above scenario), we allow you to use 80% of sale proceeds to purchase new stocks on the day of sale. The remaining 20% becomes available for purchasing new stocks on T+1 (Thursday, in the above scenario). To understand this, read more.
Important: Risks associated with BTST transactions: