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 . To learn more, see What does settlement cycle mean? If a stock is bought on Monday, it gets delivered to the demat account on Tuesday. However, the stock can be sold even before receiving it in the demat account.
- Assume a client has ₹10,000 in the Zerodha account.
- On Monday, 5 shares of Reliance are bought at ₹2000 each.
- On Tuesday, the same 5 shares of Reliance are sold at ₹2100 each.
Buy Value = ₹10,000/-
Sell Value = ₹10,500/-
₹10,000 in the Zerodha account is blocked immediately on Monday towards the purchase of Reliance shares. This is settled to the Exchange on Tuesday (T+1 day).
On Tuesday, the client sells the shares that are supposed to be delivered on Wednesday. The client is allowed to sell the shares on Kite since the delivery of Reliance shares is expected by Tuesday. Once these shares are delivered to the stockbroker on Tuesday, the stockbroker marks it toward the client’s upcoming obligation to give the shares, and the sell transaction is settled on Wednesday.
Although the credit of funds from selling the stock is received only after 1 day (Thursday, in the above scenario), Zerodha allows the client 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 (Wednesday, in the above scenario).
The risks associated with 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. This can lead to a penalty. To learn more, see What is short delivery and what are its consequences?