What Is Trade to Trade (T2T) Stocks? Meaning, Rules & How to Trade

What are Trade-to-Trade Stocks?

 

Trade to Trade Stocks: Meaning

T2T segment contains stocks where the stock price movement has been very erratic and volatile. The intraday trading limitation on T2T stocks helps save investors from extreme volatility and wild speculative trades in these shares.

SEBI mandates different types of settlement cycles and segments of stocks based on these settlement cycles. The Trade Trade stocks are one such segment. Trade-to-Trade stocks need to be traded only on a delivery basis, which is T+2. T2T segment stocks are not permitted to be traded in Intraday Trading. For an investor, this means that if you buy T2T stock, it is delivered to you on a T+2 basis. You cannot sell these stocks on the same day, which means that you cannot take price advantage of any stock movement within a day until you get the delivery of the stock. Hence the BTST (Buy Today Sell Tomorrow) Strategy does not apply to stocks marked in the T2T segment without stock delivery in your account.

 

How to Identify Trade-to-Trade Stocks

Stocks are moved into the T2T segment by SEBI based on certain factors which indicate highly speculative trading and unusual price fluctuations. The regulator considers a combination of the below factors to mark stock for the T2T segment:

 

PE of the stock: If the PE of a stock is highly overvalued compared to the overall PE of the market and benchmark segment, it is considered overheated and speculative. This criterion is for stock to be identified and moved to the T2T segment.

 

Price Fluctuation: If a stock's price movement is highly volatile and its price is much higher than the sector it is benchmarked against, it can be moved to the T2T segment. Extreme price fluctuations threaten investors' capital and overall market movement and stability. To control this risk, the T2T segment is used.

 

Market Capitalization: If a stock's market cap falls below 500 crores, it can be moved into the T2T segment. The small size of a company can make it vulnerable to heavy speculation, thus increasing the risk of speculative volatility.

 

Stock analysis of the key numbers can easily show that a stock may move off from the intraday trading list by SEBI to avoid highly speculative activity and protect investors' interests. Before doing any intraday trade transaction, you must look out if the stock is in the T2T segment. IPOs are not categorized in the T2T segment.

 

On a quarterly basis, SEBI monitors and assesses stocks to be moved in and out of the T2T segment. Stocks are moved in and out of the T2T segment by exchanges with SEBI's nod and guidelines. This is done on a fortnightly basis. A stock needs to stay in a price filter of 5% for 22 days before being moved from the T2T segment to a regular trade segment. This limits extreme volatility in the price. 

Stocks listed in F&O Trading are not moved to the T2T segment.

 

How to Trade T2T Stocks:

1. Identify stocks that are marked T2T segment. You need to allocate the full price of the purchase since the purchase is delivery basis. It means that you need to pay the full purchase price by the end of the day.

2. Before placing a Sell trade in these stocks, check your stock holding in your Demat account to confirm that delivery is executed. Only then can you sell the holding. If you sell the share without a delivery in your Demat, you can incur losses by way of the claim going into the auction.

 

Similarly, when you sell, you have to give delivery of the stock.

1. Every trade is complete with delivery and payment. BTST trading strategy is not applicable, and one needs to have enough funds in their account for delivery-based settlement. But Today, Sell Tomorrow or Sell Today Buy Tomorrow can't be utilized in this segment, and you can't take single-day trading calls. Only upon delivery, can you make the selling decision.

 

For example, if you buy a T2T segment stock at Rs 100 today and the price moves to Rs 120, you cannot sell the stock the same day to take advantage of price movement. The stock will be delivered in your demat on the T+2 delivery cycle. Only when the stock is in your demat account can you sell the stock.  

 

Conclusion:

Trade stocks present a good opportunity to invest in highly volatile stocks and stabilize with price movement circuits in the T2T category. One can take advantage of this segment to find value buys on a delivery basis. Stock investors shy away from very high valuations, market trends, etc. T2T segment lends some control to price fluctuations of these stocks, making them attractive to investors.

 

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Frequently Asked Questions (FAQs)

1. What are Trade to Trade (T2T) stocks?

Trade to Trade (T2T) stocks are securities placed in a segment where trades are generally subject to compulsory delivery settlement. Intraday netting is not permitted for these securities.

2. What does T2T mean in the stock market?

T2T stands for Trade to Trade. It is a trading segment where transactions are settled through delivery rather than being treated as regular intraday trades.

3. Can I do intraday trading in T2T stocks?

Generally, no. T2T stocks are subject to compulsory delivery settlement, so regular intraday buying and selling is not permitted.

4. How are T2T stocks settled?

T2T trades are settled through the applicable delivery-based settlement mechanism. Investors need to ensure they have sufficient funds or securities to meet their settlement obligations.

5. Why are some stocks moved to the T2T segment?

Stock exchanges may move certain securities to the T2T segment based on applicable surveillance and regulatory criteria. This can help reduce excessive speculative activity and promote orderly trading.

6. Are T2T stocks risky?

T2T classification does not necessarily mean that a stock is risky. However, investors should evaluate the company's fundamentals, liquidity, volatility, valuation, and other relevant factors before investing.

7. Can I buy T2T stocks for long-term investment?

Yes. T2T stocks can be purchased and held as long-term investments, subject to applicable exchange and settlement rules.

8. How can I check if a stock is in the T2T segment?

You can check the latest trading segment and settlement information through the relevant stock exchange or your broker's trading platform before placing an order.