T2T stocks or Trade-to-Trade stocks form a separate category on the Bombay Stock Exchange and the National Stock Exchange. In other words, exchanges move highly speculative shares to the Trade-to-Trade (T2T) segment. Exchanges often move stocks to the T2T sector after consulting with market regulator SEBI. You can find these stocks on the notices page on BSE or NSE.
Switching to T2T is a move to reduce unwarranted stock speculation. Due to the vulnerability of ordinary investors to being caught up in erratic price swings, SEBI is always on the lookout for volatile equities. We will discuss all aspects related to T2T stocks in this blog post.
Definition of T2T stocks
Trade-to-trade stocks must be delivered before they can be traded (T+2 settlement). Hence, intraday position squaring is not allowed in T2T stocks since it can fuel further speculative activity.
So, if you buy trade-to-trade equities today, you can sell them once the T+2 settlement is done. You cannot sell these stocks the same day or before you get them in your demat account.
Types of T2T stocks
To safeguard investors’ interests, NSE and BSE group these stocks together. The classification is based on several qualitative and quantitative factors, such as an inflated P/E ratio, a wide range of prices, and a significant decline in market capitalization.
The following is a summary of every one of these BSE subgroups:
- Stocks that are traded frequently on the BSE A group market.
- Stocks in the BSE Z group: Stocks that have been banned for breaking exchange regulations.
- Stocks in the Trade to Trade category are part of the BSE T group.
- Stocks in the BSE group don’t fit into any other categories.
The NSE Series are categorized as follows:
- Stocks in the Trade for Trade sector are under the BE Series. BE stands for Book Entry.
- Stocks in the BZ Series are banned because they broke the exchange’s regulations.
- Stocks in the EQ Series that allow both intraday trading and delivery. EQ stands for Equity.
Securities that the BSE places in the Trade to Trade sector are T group shares. Other names for T Group Shares include:
- Stock trading to trade
- Shares of T to T
- Script T2T
- Securities from the T group’s trade-to-trade section
Characteristics of T2T stocks
The following are some of the criteria for moving the equities or stocks to the trade-to-trade segment:
- Stock P/E: One of the crucial metrics for transferring traded shares to the traded stock section is P/E. For instance, a stock’s P/E exceeds 40, but the P/E of the Nifty is just 20, the stock may be picked for moving to T2T segment since it is seen to be overpriced.
- Price variation: Switching to T2T may be motivated by price fluctuations in the index used as a benchmark and the underlying stock’s price. A stock can be shifted to a different trading segment if its price is about 30% greater than the index or a specific segment to which it is compared. This is because the stock’s price shouldn’t differ significantly from the benchmark index.
- Market capitalization: A stock is deemed fit to migrate to the trade-to-trade sector whenever its market capitalization drops below ₹500 crores. However, initial public offerings are exempt from this stipulation.
How to trade in T2T stocks?
Traders ought to be conscious of the T2T sector list on the stock market to avoid speculative firms.
Steps for trading in T2T stocks
- You might be wondering how to sell a trade-to-trade stock. Hang on, we will provide you with the answer.
- You should pay the total price if you transfer stocks in the T2T section; otherwise, the stock exchange will charge you a penalty.
- Whenever you sell a stock, you must ensure that the delivery is in the demat account since your order will only be accepted if it is.
- T2T stocks cannot be bought or sold on the same day, and intraday exchange is not permitted. But after T+2, may you sell these shares.
- The circuit computations are set at +5% or -5% when stocks are moved to the T2T section.
- This is intended to make it less likely that instability will persist at a particular level.
Benefits of trading in T2T stocks
Despite being challenging, the T2T sector provides several advantages. Investors can protect themselves against price volatility and complete speculative activity by engaging in T2T trading.
Risks of trading in T2T stocks
When you purchase a stock subject to T2T trading, you must accept delivery of the share without exception. You must, therefore, pay the share value by EOD. If not, the broker will be required to trade your shares on the market on T+2 and charge you for the loss. Remember, the broker could also impose penalties on you.
Best practices for trading in T2T stocks
- Take care when following hot tips: Even if you trust your source, never act on stock marketing advice without proper research. Always choose your stocks after thoroughly investigating and researching the company and its performance.
- Get rid of losing stocks from your portfolio: A stock’s eventual recovery after a severe decline is not certain. Be aware that it is crucial to be realistic about what is and is not achievable in the share market.
- Avoid abruptly exceeding your investment budget: While it is true that long-term assets are far superior to other types of investments, you should take your time investing more money than you have set up. Decide on a specific sum instead, and spread it among many reputed stocks.
- Circuit filters for a stock moved to the T2T sector are set at 5% or less. This reduces the fluctuation in these equities.
Is it good to buy T2T stocks?
Investing in T2T (Trade-to-Trade) stocks comes with advantages such as reduced speculative trading and potential for more stable investments. However, it’s essential to conduct thorough research and consider your investment goals and risk tolerance.
What are the criteria for T2T stocks?
T2T (Trade-to-Trade) stocks have strict criteria, including mandatory delivery-based trading, full payment upfront, and no intraday trading. These measures aim to reduce speculation and enhance market stability.
How long does a stock stay in T2T?
A stock stays in T2T (Trade-to-Trade) segment until it meets specific criteria set by the exchange. It can take time as the stock needs to fulfill these conditions.
What is an example of a T2T stock?
T2T stocks are those that are traded in the Trade-to-Trade segment due to certain conditions. Specific examples can vary, so checking with your stockbroker or exchange for current T2T stocks is advisable.