Optimizing Your T2T Stock Investments in India

Introduction

There are certain stocks in the Indian stock market that are different from the rest of the stocks listed. Such stocks are called T2T-trade. Certain traits are uniquely associated with these stocks. Some of the traits include a limited price change, which is allowed in the case of T2T stocks. Also, the buyer and the seller must do the physical delivery of the shares for every trade made. In this article, we will look into what T2T stocks are and how one can invest in them.

What are T2T stocks?

T2T stands for "Trade to Trade" and is a type of stock that trades differently than normal stocks do. T2T stocks are purely delivery-based and have a settlement period of T+1. This means that the shares of such stocks that you buy during the trading hour will be delivered to your Demat account the next trading day and you have to sell them in the same manner. Trade stocks cannot be traded intraday and also cannot be short-sold. Trade-to-trade stocks compel traders to trade in a slow and steady manner.

Features of T2T Stock Segment

The T2T stocks form a special category of stocks and every trade in this segment requires the physical delivery of shares. Following are some of the key features of T2T stocks:

 

• Buy and Sell on Delivery: The T2T stocks are traded on a delivery basis. It means that you need to get the shares physically delivered to your demat account when you buy these stocks and the shares need to be transferred to the buyer’s demat account when you sell these stocks.

 

• Intraday trading is not allowed: Some stocks allow you to buy and sell on the same trading day (intraday trading). However, in the case of T2T stocks, you need to hold them for at least one trading day in your portfolio in order to sell them on the next trading day.

 

• Regulation: The T2T stocks are governed by special rules that prevent speculative trading and help to maintain the overall stability of the market. The requirement of physical delivery of stocks acts as a guard against price manipulation and speculative frenzy.

 

• Risk and Reward: Investing in T2T stocks parallels the careful consideration required for any financial venture. While they may present a perception of stability, investors must also acknowledge the potential for reduced liquidity and slower price movements, necessitating a judicious approach to portfolio management.

 

• Nature of T2T Stocks: Some folks see T2T stocks as less of a rollercoaster ride because of the watchful eye of regulations, but they do require a bigger chunk of your cash since you can't dabble in quick intraday trades.

 

Exploring Trade-to-Trade Stocks | Illustrated with Examples

Let’s take a real-life example to understand T2T stocks better.

You're eager to jump into the market, so you decide to grab 1000 shares of Company A, which happens to be a T2T stock. Yesterday, each share was priced at Rs. 100, so your total investment amounts to Rs. 100,000.

Now, here’s the catch: You won’t see those shares snugly nestled in your Demat account until the end of the next trading day, thanks to the T+1 settlement cycle.

 

And if you’re thinking of selling before you officially own them, sorry, no dice. You’ve got to wait until those shares are safely in your pocket before making any moves.

 

Why Certain Stocks Are Designated in the T2T Stock Segment

There are a few key reasons why stocks are classified as trade-to-trade:

• Stocks may be categorized as trade-to-trade due to high volatility or irregular trading patterns, ensuring more orderly trading and mitigating risks for investors.

• Suspicions or evidence of price manipulation or insider trading may prompt regulators to place a stock under T2T for closely monitored trading activity.

How to Spot Trade-to-Trade Stocks

 

To identify trade-to-trade stocks, check their series name on the exchange website or your trading platform.

For example, on the NSE, trade-to-trade stocks typically feature the addition of the term “BE” to the scrip name.

 

Criteria for Shifting to T2T Segment

Stocks undergo assessment for inclusion in the trade-to-trade segment based on the following factors:

1. P/E Over-Valuation: Stocks displaying a notably higher price-to-Earnings (P/E) ratio than the market average may transition to the trade-to-trade segment.

2. Price Variation: Stocks exhibiting significant price fluctuations compared to benchmark indices (Sensex or Nifty) could be moved to the trade-to-trade segment.

3. Market Cap: Stocks with a market capitalization below Rs. 500 crore qualify for T2T classification.

Frequency of Transitioning Stocks to T2T Segment

Traders holding positions in T2T stocks should bear the following points in mind:

• Stock exchanges conduct reviews of all listed stocks every two weeks.

• Stocks meeting the specified criteria are shifted to the T2T segment.

• Furthermore, stock exchanges carry out four separate reviews of the identified stocks.

• If T2T stocks no longer satisfy the criteria, they are removed from the segment.

 

Trading T2T Stocks: What You Need to Know

Here's a rundown of essential information for trading in T2T stocks:

How do you Buy a Trade-to-Trade Stock?

• Full Payment: Purchase T2T stocks by paying the full amount upfront. Margin trading facilities are not available for these stocks.

• Delivery: Take delivery of the shares in your Demat account upon purchase.

• Same-Day Selling Restriction: You cannot sell the stock on the same day of purchase or before delivery, as exchanges will reject such orders.

What if the trade gets canceled?

• Penalty: If a T2T stock order is canceled, the clearing member is liable to pay a penalty of Rs. 1000. This amount increases to Rs. 2000 if the clearing member manages both the buy and sell sides.

• Settlement Date Extension: If a trade fails to settle due to unavoidable circumstances, traders must seek prior endorsement from NSSCL to extend the settlement date.

How do I sell a T2T stock?

• Delivery Verification: Before selling a T2T stock, ensure you have the delivery of the stock in your Demat account. You can verify this by logging into your online trading platform’s website or app.

• Next Trading Day Selling: You can sell T2T stocks only on the next trading day (T+1) after taking delivery.

Settlement of Trade-to-Trade Stocks

• Settlement Timeline: The settlement of T2T stocks typically occurs on T+2 days, meaning the transaction is completed two business days after the trade date.

• Sale Proceeds: You will receive the credit of the sale proceeds in your trading account after the settlement cycle is completed.

 

Pros and Cons of Trade-to-Trade Stocks

Similar to any investment opportunity, trade-to-trade stocks come with their own set of benefits and drawbacks that necessitate careful consideration

 

 

Key Considerations for Trading T2T Stocks

Before delving into trading T2T stocks, keep the following points in mind:

 

• Ensure Adequate Funds: Be ready to make a down payment for your purchase of T2T stocks, as no partial payment is allowed in such a transaction.

• No Intraday Trading: It is noteworthy that T2T stocks do not seem suitable to be held intraday, as deliveries of shares are mandatory.

• Avoid Auction Costs: Trying to sell T2T stocks as a mere transaction without taking delivery can make your shares get offered and put up for sale, which poses a threat to your financial future.

• Conduct Thorough Research: In real-life situations, before investing in T2T stocks, one is supposed to research the company for investment criteria.

Conclusion

In conclusion, trade-to-trade (T2T) stocks constitute a specific category within the stock market, that employs a delivery-based approach to stock trading and does not allow intraday trades. All these stocks are bound by the rules and regulations put in place by both the stock exchanges and regulatory authorities, such as the Securities & Exchange Board of India (SEBI) so as to ensure that there is free and fair trading in the market.

Although T2T stocks can generate significant earnings, it is crucial to agree that higher risks are always associated with them. As a result, factors like low liquidity and price fluctuations can affect investment results to a large extent.

For any investor willing to invest in T2T stocks, a lot of care and research needs to be done. For these types of investments, one could use some caution and do wide research and analysis so as to avoid high risks and make the right decisions depending on each person’s financial status and capacity to take risks.

Invest wisely and confidently with Enrich Money – where every trade is guided by insight and integrity, ensuring your financial journey is both enriching and rewarding.

 

Frequently Asked Questions

1. Is it worth investing in T2T stocks?

Holding T2T stocks can open up or close down diverse doors for investors with different investment objectives, depending on how much risk they are willing to take. Some investors have seen a long-term approach to investing in T2T stock as exciting since it comes with higher risks such as low liquidity and high price: swings. Proceed with caution.

 

2. Over the past year, how can I tell that this or that security is of the T2T type?

To enable the identification of T2T shares, click on the Night Notices link on the BSE or NSE site. This is a list of companies that have been dematerialized to the T2T segment—a decision that is usually reached mutually with a team from the exchanges and SEBI onboard.

 

3. Under what circumstances can I be allowed to sell T2T shares?

You can sell T2T shares only after they have been credited to your demat account, which normally takes T+2 days from the purchase date. It is important to state that in an effort to sell T2T shares before they receive delivery, they will be rejected by the exchange.

 

4. Computations and analyses of T2T stock data show that these stocks do offer liquidity.

Trade-to-trade stocks, on average, involve less stock mobility than other stocks in the market.

 

5. Is it possible for a stock to come from T2T and go to normal trading?

Yes, T2T stocks can be delisted and therefore, they can no longer be segmented if they fail to meet the necessary standards of the segment. In such situations, they move them to the normal stock segment.