Why do certain stocks have a maximum 5% price change restriction while others have no limit on price movement? Why do some stocks have low liquidity, high volatility, and strict settlement rules? These are actually some of the characteristics of T2T stocks, which are a special category of stocks in the Indian stock market.
T2T stock segments stand for trade-to-trade, which means that every trade in these stocks must result in the actual delivery of shares to the buyer’s demat account.
In this blog, we will explore everything you need to know about T2T stocks, how they work, and how you can buy or sell trade to trade stock.
T2T Stocks
“T2T” means “Trade to Trade.”
In the Indian stock market, the T2T segment refers to a specific category of stocks that are subject to special trading regulations.
These regulations are put in place by the stock exchanges, like the BSE (Bombay Stock Exchange) or the NSE (National Stock Exchange), to ensure fair and transparent trading practices.
Characteristics of T2T Stock Segment
Stocks in the T2T segment are those where every trade conducted on them must result in the actual delivery of shares.
Here are a few things that are unique about t2t stocks:
- Delivery-based Trading: T2T stocks are traded on a delivery basis, meaning when you buy shares, you have to take delivery of them in your demat account, and when you sell shares, you have to deliver them to the buyer.
- No Intraday Trading: Unlike some other stocks where you can buy and sell on the same day (intraday trading), T2T stocks don’t allow for this.Â
You have to hold them for at least one trading day before selling.
- Regulation: These regulations are put in place to prevent speculative trading and ensure stability in the market.
Mandating delivery-based trading reduces the possibility of price manipulation or speculative bubbles.
- Nature of T2T Stocks: For some investors, T2T stocks might be perceived as less volatile because they are subject to stricter regulations.
However, they also require a greater commitment of funds because you cannot engage in intraday trading with these stocks.
- Risk and Reward: Investing in T2T stocks requires careful consideration, like any other investment.
While they may offer a more stable trading environment, they also come with the risk of reduced liquidity and potentially slower price movements.
Why are Some Stocks Identified in the T2T Stock Segment
Some common reasons why stocks are categorised as T2T include:
- Volatility: Stocks with high volatility or irregular trading patterns may be moved to T2T to ensure more orderly trading and to mitigate risks for investors.
- Price manipulation concerns: If there are suspicions or evidence of price manipulation or insider trading in a stock, regulators may place it under T2T to closely monitor trading activity.
How Can I Identify T2T Stocks?
A person can identify T2T stocks by looking at their series name on the exchange website or their trading platform.
For instance, on the NSE, T2T stocks are identified by the addition of the word “BE” to the scrip name.
Criteria for Shifting to T2T Segment
Stocks are considered for the T2T segment based on the following criteria:
- P/E Over-Valuation: If a stock’s Price-to-Earnings (P/E) ratio is significantly higher than the market average, it may be moved to T2T.
- Price Variation: Stocks with substantial price variation compared to benchmark indices (Sensex or Nifty) may be shifted to T2T.
- Market Cap: Stocks with a market capitalisation below Rs. 500 crore are eligible for T2T.
How to Trade T2T Stocks
Here are some things that you must know to trade in t2t stocks:
How to Buy a T2T Stock?
To buy a t2t stock, you need to pay the full amount and take the trade on delivery.
You cannot sell the stock on the same day or before the delivery, as your order will be rejected by the exchange.
- Full Payment: Purchase T2T stocks by paying the full amount. No margin facility is available.
- Delivery: Take delivery of the shares in your Demat account.
How to Sell a T2T Stock?
To sell a trade to trade stock, you need to ensure that you have the delivery of the stock in your demat account, which you can verify by logging into your online trading platform’s website or app.Â
- Delivery in Demat: Ensure you have the delivery of T2T stocks in your Demat account.
- Next Trading Day: You can sell T2T stocks only on the next trading day (T+1).
Settlement of T2T Stocks
The settlement of T2T stocks usually takes T+2 days, meaning the transaction is completed two business days after the trade date.
You will receive the credit of the sale proceeds in your trading account after the settlement cycle is completed.
Conclusion
T2T stocks are a special category of stocks that require delivery-based trading and have no intraday trading option. They are subject to strict regulations by the stock exchanges and SEBI to ensure fair and transparent trading practices.
T2T stocks can offer high returns, but they also come with high risks, such as low liquidity and price fluctuations.
Investors who are interested in T2T stocks should be careful and diligent in their research and analysis.
FAQs
Buying T2T stocks can be a good or a bad decision, depending on your investment objectives and risk-taking capability. Some investors may find T2T stocks attractive because they offer the potential for high returns in the long term. However, T2T stocks also come with high risks, such as low liquidity and price fluctuations. Therefore, you should be extremely cautious.
To find your T2T shares, go to the Notices section on the BSE or NSE website. There, you’ll see a list of companies moved to the T2T segment. This decision is typically made jointly by the exchanges and SEBI.
You can sell T2T shares only after you receive the delivery of the shares in your demat account, which usually takes two working days (T+2) from the date of purchase. If you try to sell T2T shares on the same day or before the delivery, your order will be rejected by the exchange.
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.