BTST (But Today Sell Tomorrow) trades are those trades where you purchase shares and sell it at your sole discretion on T+1 day or T+2 day i.e. before the trade is settled and the shares are not delivered into your DEMAT account. The risk with BTST trades is that since your are selling the shares which are not yet delivered in your DEMAT account, you are entirely relying on the seller from whom you purchased the shares. If the seller defaults on giving you the purchased shares i.e. in the event of short delivery, your obligation as a seller to deliver the sold shares would not be met and you will face the risk of auction penalty which can be levied upto 20% of the value of shares that is short sold.
In order to safeguard the interest of the customers the margin received by them against the BTST trade cannot be used to create new positions.