Trade to Trade (T2T) is a stock segment where you can only buy and sell shares by taking actual delivery of the stock, which means you can't trade them on the same day. In other words, you can't do quick buying and selling (intraday trading) with T2T stocks.
What is the trade-to-trade stock segment?
The trade-to-trade (T2T) segment is a dedicated market segment where the settlement of stocks is mandatory. In this segment, each trade is settled through actual delivery of shares. Netting off of buy and sell orders is not allowed. This effectively means that traders cannot trade in this segment on an intraday basis.
What are trade to trade (T2T) stocks?
Stocks categorised under the Trade-to-Trade market segment are referred to as Trade-to-Trade stocks or T2T stocks. Stock exchanges may move stocks into the T2T segment to curb excessive price speculation or price manipulation.
Both the premier stock exchanges — the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) — publish the list of stocks available under the T2T segment on their official website. The NSE classifies T2T stocks under the ‘BE’ series, whereas the BSE classifies them under Group T.
Criteria for shifting a stock to the trade-to-trade stock segment (T2T)
Now that you know the meaning of the trade-for-trade segment, let’s look at some of the conditions a stock has to satisfy to be shifted to the T2T segment.
- The stock's Price-to-Earnings (P/E) ratio is either below 0 or greater than or equal to the upper limit of 25.
- The price variation of the stock is equal to or greater than the Nifty 500 index or its benchmarked sectoral index by more than 25%.
- The market capitalisation of the stock falls below Rs. 500 crores.
It is essential to note that the stock must satisfy all the conditions listed above to be classified as a Trade-to-Trade stock by the exchanges.
How Frequently are Stocks Moved to the T2T Segment?
The stock exchanges conduct a review of all of the listed stocks every fortnight (two weeks). Stocks satisfying the above-mentioned criteria are moved to the trade-to-trade segment.
The stock exchanges also review all the listed stocks every quarter. During this review, stocks in the segment are analysed to check if they can be moved out into the regular trading segment. T2T stocks that no longer satisfy the above-mentioned criteria are transferred out of the trade-to-trade segment.
Example of a T2T trade
Let’s look at a hypothetical example to understand how T2T stocks work.
Let’s assume that you’re interested in trading in a company's stock. This particular company has been marked as a Trade-to-Trade stock by the exchanges. Suppose that the current market price is Rs. 550 per share. Since you expect the stock price to rise in the future, you decide to buy 100 shares of the company. The funds you need to deposit to complete the trade come up to Rs. 55,000 (Rs. 550 x 100 shares).
Now, since the Indian stock market follows the T+1 trade settlement cycle, the 100 shares you bought will be credited to your Demat account only by the end of the next day. You can sell these shares only once they are credited to your Demat account. If you attempt to place a sell order before the shares are credited, it will be immediately rejected by the exchange.
Things to remember while trading in T2T stocks
When trading in T2T (Trade-to-Trade) stocks, it's essential to keep a few key points in mind:
- Delivery-Based Settlement: T2T stocks are meant for delivery-based settlement only. This means you need to pay the full amount for the stock you purchase; intraday trading is not an option. Ensure you have the funds to cover the entire purchase.
- Different Category: In the eyes of SEBI (Securities and Exchange Board of India), T2T stocks that are bought and sold in a day fall under a different category. When you buy a T2T stock, it is delivered to you like any other stock. If you attempt to sell the stock without taking delivery, it will be settled through an auction process, which can be more expensive.
- Speculative Nature: T2T stocks are often considered speculative and can carry higher risks. To help traders identify these stocks, both BSE and NSE have separate sections on their websites dedicated to T2T stocks. Before trading in them, it's important to conduct thorough research and understand the risks associated with these stocks.
By being aware of these factors and doing your due diligence, you can navigate T2T stocks more effectively and make informed trading decisions.
How to trade in the T2T segment?
The trading process remains the same irrespective of whether a stock is in the regular market segment or the Trade-to-Trade segment. However, there are a few points that you need to keep in mind when trading in T2T stocks.
- Since all stocks under this segment are required to be mandatorily settled, you need to deposit the entire trade value to purchase the required units.
- You can sell the stocks only after they are delivered to your Demat account. All attempts to sell them before delivery will be rejected by the exchanges.
It is advisable to check if you’ve enabled the delivery instruction through DDPI in your Demat account before trading. If it is not enabled, the shares you buy cannot be delivered, and this may result in the levy of a penalty.
Conclusion
Now that you know what Trade-to-Trade stock means, here’s something you can follow if you’re planning to trade in this segment. Since exchanges generally classify stocks that are suspected to be highly speculative or manipulated as T2T securities, you must be extremely cautious while trading in these stocks.
It is a good idea to have a comprehensive risk management plan in place when you buy or sell Trade-to-Trade stocks. Consider restricting your position size and placing appropriate stop-loss orders to limit the downside if the market moves against your expectations. Also, since you cannot sell these stocks before they’re delivered to your Demat account, remember to plan your trades accordingly.
