What risks come with BTST trades?

BTST offers potential upside, but it carries specific risks that every trader must understand before using it.

1. Auction risk due to short delivery
This is the biggest BTST risk. When you sell shares on T+1, the clearing corporation expects you to deliver them on settlement day. Since they are not yet in your demat, you depend on the original seller to deliver correctly.

If that seller defaults, your account is marked short. The exchange then purchases the stock in the auction market to fulfil your sale. If the auction price is higher than your sale price, you bear the loss. In volatile stocks, this difference can be significant.

2. Circuit and liquidity challenges
If a stock hits the upper circuit, sellers vanish and delivery may not happen. If it hits the lower circuit, buyers disappear and exiting becomes difficult. Both situations increase risk during BTST trades.

3. Higher risk in volatile or illiquid stocks
Stocks with low volume, wide spreads, or operator activity are more prone to delivery issues. ASM or GSM-tagged stocks are especially risky and generally avoided for BTST.

4. Corporate actions complicate settlement
Splits, bonuses, dividends, and rights issues can disrupt quantity matching during settlement. These events often create avoidable risks for BTST trades.