Trade to Trade (T2T) Stocks

T2T stocks, or Trade to Trade stocks, must be delivered for trading (T+2 settlement), meaning they cannot be traded intraday.
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Trade to Trade (T2T) Stocks
3 mins
10-Jul-2024

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 T2T 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?

Trade-to-Trade stocks, or T2T stocks, must be delivered for trading with a T+2 settlement, preventing them from being traded on a ‘Buy Today Sell Tomorrow’ (BTST) strategy or intraday basis. Stocks are placed in the T2T segment by stock exchanges to limit extreme 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.

How to identify T2T stocks?

Trade-to-trade stocks are developed specially by stock exchanges in collaboration with SEBI. This is done to keep unwanted occurrences at bay and safeguard trader and investor interest.

Under the T2T system, only delivery-based settlements can be made. This means that, by design, intraday trading is not allowed, and you can acquire stock by paying for it.

In situations where a trader buys and sells some stock within one day, it would be treated by the exchange as different trades, as mentioned below:

  • The stocks bought by the trader will be included in delivery.
  • The stocks sold without having their prior delivery will be treated as separate. This transaction will be settled by an action as a fundamental norm of T2T was violated. Under the T2T system, you cannot sell stocks you do not possess in delivery. This becomes a costly violation for the trader/investor.

This reinforces the importance of checking the category before initiating an intraday transaction.

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.

Price-to-earnings (P/E) ratio

This is one of the most important criteria when shifting a stock to the T2T segment. It is important to check for P/E overvaluation before making the decision. For instance, if the P/E in Sensex is at 15 and the stock you are looking at has a P/E of 35, it may be a good candidate for shifting to the T2T segment.

The P/E ratio here is calculated using the earnings per share (EPS) from the previous four quarters.

Price variation

Another criterion is price variation. Let us assume a stock's price is equal to or greater than the Nifty 500 index or its benchmarked sectoral index by more than 25%. In this case, it may be moved to the T2T segment. The bottom line is that the stock's value should not significantly deviate from the benchmark index (Sensex or Nifty).

Market capitalisation

The third criterion is market capitalisation, which is fairly straightforward. A stock can be considered for shifting to the T2T segment if its market cap falls under Rs. 500 crore. This aims to prevent manipulation in smaller stocks. An important note is that IPOs are generally exempt from these T2T regulations.

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:

1. 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.

2. 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.

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.

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Frequently asked questions

What is T2T in the stock market?

T2T stands for "Trade-to-Trade" in the stock market. It is a segment where stocks can only be traded on a delivery basis. This means that when you buy T2T stocks, you are required to pay the full amount for the stock, and intraday trading or BTST (Buy Today, Sell Tomorrow) trades are not allowed. T2T stocks are often considered speculative and can carry higher risks. They are designated as such to promote more cautious trading and prevent excessive speculation. T2T stocks are suited for investors who want to take delivery of shares and hold them for the long term, rather than engaging in short-term trading.

Is T2T good for stock?

Whether T2T is good for a stock depends on the perspective. For investors, T2T can be beneficial as it reduces volatility and promotes stability, ensuring that only genuine investors who intend to take delivery participate. However, for traders, T2T can be less favorable since it prohibits intraday trading, limiting opportunities for short-term gains. Overall, T2T can contribute to healthier trading practices by curbing excessive fluctuations and fostering a more stable market environment.

How long does a stock stay in T2T?

A stock typically stays in the T2T segment for the initial 10 days after listing. These shares are credited to the trader’s demat account after two to three days. Trade-to-trade stocks are in the BE Series on the National Stock Exchange and T Group on the Bombay Stock Exchange.

Is Adani Power a T2T stock?

To determine whether Adani Power is currently classified as a T2T stock, one would need to check the latest updates from the relevant stock exchange, such as the BSE or NSE in India. The classification of a stock in the T2T segment can change based on periodic reviews by the exchanges. As of the last update, it’s essential to refer to the current listings or announcements from the exchange for the most accurate information.

When can I sell T2T stocks?

You can sell T2T stocks only after taking delivery, which usually takes two business days (T+2). These stocks cannot be sold on the same day they are bought, as every trade must be delivered.

What are the rules for T2T?

In the T2T segment, intraday trading is not allowed, and all transactions must be delivered. If you buy a T2T stock, you cannot sell it on the same day, and these orders will be rejected. You can sell it on the next day of trading (T+1).

How to exit T2T stock?

To exit a T2T stock, you must take delivery on the T+2 date, as intraday settlements are not allowed. When selling, you must have the stock in your demat account to give delivery on T+2 trading day.

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