What are the Risks Involved in BTST

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Every trader has come across the BTST (buy today,
sell tomorrow) strategy by now. In India, it's a
short-term strategy allowing the buying of stocks
today and selling the next day. This process is
complete before delivery to the demat account. It
helps to maximise short-term price fluctuations
and reduce transaction costs. Although this
sounds enticing, BTST trading has its share of
risks and repercussions. An increasing number of
investors look forward to trying this trading
method as they debut on the stock market, fresh
after a course. This blog shares the various
risks this lucrative trading strategy holds.
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What is BTST Trading?
This in-demand technique involves buying and
selling stocks usually the next day. It happens
before the stocks even reflect in your demat
account. Given the short time frame and reduced
monitoring, people are growing increasingly aware
of this method. It does take skill and
exceptional research to pick out a BTST
stock.Stock market learning courses help
individuals benefit from better skills and
decision-making. While they deeply cover the
incentives of such a trading method, they also
delve into some gloomy features it holds. Apart
from poor decision-making skills, a few other
risks exist for traders who exercise BTST trading
activities. 1. Extreme Price Volatility This
stock market strategy is solely dependent on
short-lived price fluctuations. In most cases,
these prices are uncertain and unstable. An
assortment of factors can cause sharp declines in
stock prices, causing immense losses. Overnight
geopolitical news or negative company media can
cause upsetting impacts. It exposes the wagering
nature of buy today, sell tomorrow trading.
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2. Risk of Short Delivery
This stock market technique is time-sensitive,
and a window to close the transaction exists.
That said, there is a risk that the seller cannot
deliver his end of the deal in time. The term for
the situation is short delivery and incurs costs
for the buyer. The buyer must pay extra as the
delay attracts a price change. The excess costs
could range anywhere from a few percent more to
20 more! This penalty fine is commonly known as
an auction penalty. If you are a BTST trader, we
suggest you prepare yourself for these penalties
as a precaution. 3. Liquidity Concerns Liquidity
refers to the ease of selling or purchasing a
particular stock. Sometimes, BTST trading
presents a liquidity issue that may dissuade
traders. Low liquidity arises from low volumes of
stock, preventing trading at a convenient price.
Even the best SEBI research analyst in India
knows how the vital role stock liquidity plays.
That is why they would advise you to assess
liquidity levels before investing. Investing in
stock with low liquidity can leave you stuck with
stock as you can't find a buyer. Investing large
sums in stocks with low liquidity is another
hazard connected with this trading technique.
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4. No Control over External Factors
Endless internal and external factors influence
stock prices. Most of these external factors are
out of your control. Government policies and
global markets are a few of these uncontrollable
aspects. It takes an overnight movement of any of
these factors to impact the Indian stock market.
Even fluctuations in commodities and
international stocks can set off a chain
reaction. Also, to add to this point, the stock
market is quite volatile and influenced by
commodity and exchange rates. So, if the local
currency slips, the stock market probably
will. 5. Selection of Appropriate Stocks It
takes skilled expertise for an investor to select
the stock with the most potential. Analysing
price charts for a considerable time is also
crucial. Even then, many traders may not make the
desirable and profitable selection. Fortunately,
a solution arises through a research analyst who
provides valuable help. A BTST calls provider
analyses stocks and gives expert insight into
what stock will bear profits.
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6. Legal and Regulatory Risks
Every BTST trade must adhere to the strict
regulations enforced by the SEBI (Securities and
Exchange Board of India) and individual stock
exchanges. However, this is not as simple and
regulations for trading and investing can change
regularly. Any immense change can result in
additional losses, which means lower
profitability. For example, hikes in
transactional or brokerage costs can reduce
profit margins. It makes the buy today, sell
tomorrow trading method less impactful and
alluring. Conclusion So, while the BTST trade
method is alluring due to its short-term nature,
it comes with risks. Understanding these risks is
imperative to position yourself to manage them. A
few examples of these risks are short delivery,
liquidity risks, and uncontrollable external
factors. With an expert to guide you or a stock
market course that covers risk management, you
can guard against BTST risks. As a trader making
conscious decisions, it is vital to understand
the possibilities beforehand.