The Ultimate Guide to Trading T2T Stocks in the Indian Stock Market

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.

What are T2T Stocks?

 “T2T” means “Trade to Trade.” These stocks trade only on a delivery basis and follow the T+1 settlement period. So, the day you buy the stocks, the shares will be delivered to your Demat account on the next trading day, and you can only sell them if you want. These stocks are not eligible for intraday trading or short selling. 

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:

1. Delivery-based Trading

Trade-to-trade stocks trade on a delivery basis. This means that 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. 

2. No Intraday Trading

Unlike some other stocks where you can buy and sell on the same day (intraday trading), trade-to-trade stocks don’t allow for this. 

You have to hold them for at least one trading day before selling.

3. 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.

4. Nature of T2T Stocks

Some investors may perceive trade-to-trade stocks 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.

5. Risk and Reward

Investing in trade-to-trade 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.

Trade to Trade Stocks| Examples 

Here is an example with which you can better understand what t2t stocks mean. 

Suppose you purchased 1000 shares of Company A, which has been categorised as one of the t2t stocks. Now, the share price was ₹ 100 yesterday when you purchased it, so you need to pay ₹ 100000 for the transaction.

As the T+1 settlement cycle is observed for these trades, you will get the shares in your Demat account only at the end of the next trading day.

Now, if you want to sell the share before getting the delivery, you cannot do so. Therefore, the position can only be squared off, once you get the delivery of the shares. 

Why are Some Stocks Identified in the T2T Stock Segment?

Some common reasons why stocks are categorised as trade-to-trade include:

• Volatility

Stocks with high volatility or irregular trading patterns may be moved to trade-to-trade 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 Trade-to-Trade Stocks?

A person can identify trade-to-trade stocks by looking at their series name on the exchange website or their trading platform. 

For instance, on the NSE, you can identify the trade-to-trade stocks by the addition of the word “BE” to the scrip name.

Criteria for Shifting to T2T Segment

Stocks are considered for the trade-to-trade segment based on the following criteria:

1. 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 trade-to-trade.
2. Price Variation: Stocks with substantial price variation compared to benchmark indices (Sensex or Nifty) may be shifted to trade-to-trade.
3. Market Cap: Stocks with a market capitalisation below Rs. 500 crore are eligible for T2T.

Frequency of Moving Stocks to the T2T Segment

A trader who has positions in the t2t stocks needs to keep a few things in mind:

• Every two weeks, or fortnights to be specific, stock exchanges review all listed stocks.
• Stocks meeting specific criteria, as mentioned above, are moved to the T2T stocks segment.
• Additionally, stock exchanges conduct four separate reviews in stocks that are analysed again.
• If T2T stocks no longer meet the criteria, they are removed from the segment.

How to Trade T2T Stocks

Here are some things that you must know to trade in t2t stocks:

How to Buy a Trade-to-Trade 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.

1. Full Payment: Purchase trade-to-trade stocks by paying the full amount. No margin facility is available.
2. Delivery: Take delivery of the shares in your Demat account.

What if the Trade Gets Cancelled?

If a trade-to-trade stock order is cancelled, then the clearing member needs to pay Rs. 1000 as a penalty, and Rs. 2000 if the clearing member is taking care of both the buy and sell side. In case the trade is not being settled due to unavoidable scenarios, then the trader needs to take the previous endorsement of NSSCL for augmentation of the settlement date. 

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. 

1. Delivery in Demat: Ensure you have the delivery of T2T stocks in your Demat account.
2. Next Trading Day: You can sell trade-to-trade stocks only on the next trading day (T+1).

Settlement of Trade-to-Trade Stocks

The settlement of trade-to-trade 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.

Pros and Cons of Trade-to-Trade Stocks

Like any other investment, trade-to-trade stocks also have advantages and disadvantages that you must be aware of.

Pros	Cons
Less prone to speculation as every trade has to be followed by delivery.	T2T stocks are less liquid compared to normal stocks
T2T stocks offer lower volatility, as rapid buying and selling are not possible in this segment	While these stocks are not highly volatile, due to sudden fall in the market, the stock prices can be affected, but selling them can be difficult in such a scenario
These stocks, if held over time, can offer higher returns, especially if bought cheaply.	Possess holding period risk.
Transactions are more transparent and result in stock ownership	Complex and needs an in-depth understanding of the market analytics

Things to Remember for Trading T2T Stocks

• Make sure you have the required funds to cover your purchase of t2t stocks, as you need to make full payment for the transaction. 
• These stocks are not for intraday trading, as delivery is mandatory
• If you try to sell trade-to-trade stocks without taking their delivery, your shares will end up in the auction, which can cost you a lot. 
• Thorough research about the company is required before investing in these stocks. 

Conclusion

Trade-to-trade 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| T2T Stocks

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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.