What are the risks involved in buy today, sell tomorrow trades (BTST)?
Understand the key risks in BTST trading — short delivery, auction penalties, price volatility, and liquidity traps — before you sell tomorrow what you bought today.
1. The "Short Delivery" & Auction Risk (Most Critical)
This is the biggest risk unique to BTST. Since you are selling shares you don't yet "own" in your Demat account, you are essentially promising to deliver something you haven't received yet.
- The Scenario: You buy shares from Seller A on Monday and sell them to Buyer B on Tuesday.
- The Risk: If Seller A fails to deliver the shares to you (due to a shortage or technical issue), you will have no shares to give to Buyer B.
- The Penalty: The exchange will consider you a "defaulter" and will buy those shares in an auction to satisfy Buyer B. You must pay the difference if the auction price is higher than your sell price, plus an auction penalty which can be as high as 20% of the stock value.
2. Price Volatility and Market Risk
One of the primary risks in BTST trading is price volatility. Stock prices can fluctuate significantly within a short period, which may lead to unexpected losses. In addition, market conditions and overnight news events—such as economic announcements, global market movements, or company-specific updates—can affect stock prices the next day, potentially moving against the investor’s position.
3. Liquidity & Circuit Risks
BTST relies on the ability to exit quickly the next morning.
- Lower Circuits: If the stock hits a lower circuit (a price floor where there are no buyers) on the second day, you will be stuck holding the stock. This turns a "tomorrow" trade into a long-term holding you might not have wanted.
- Illiquid Stocks: In small-cap or "Z" category stocks, the gap between the buying and selling price (bid-ask spread) can be so wide that it wipes out your expected profit.
