What Is Trade-to-Trade (T2T) Stock?

Do you know what trade-to-trade stock is? Trade-to-trade stocks, commonly known as T2T stocks, are stock segments generally supplied to complete the T+2 settlement. This prohibits the trading of the stock on the same day on which it was issued. 

Therefore, trading in T2T segment stocks throughout the day is unacceptable, and "squaring off" your position is not an option. 

In this article, we will discuss what "trade to trade" is, what "the trade-to-trade segment" is, and how to identify "trade-to-trade" stocks.

What are trade-to-trade stocks?

T2T stocks, also known as "Trade to Trade" stocks, must be delivered to let trading happen within (T+2 settlement). This indicates that trading involving these stocks is unacceptable on the same day.

You cannot perform the daily trading in the Buy Today Sell Tomorrow option. Because of this, you will not be able to sell any Trade 2 Trade stocks you purchase today until the T+2 settlement occurs. 

Your order can cancel if you try to sell these stocks on the same day or before you deposit them into your Demat account.

The stock exchanges and SEBI are the organisations in charge of regulating the market. They keep a close eye on the values of stocks that move rapidly or in an unusual way. 

Thus, they put the stocks in the T2T area so regular investors stay aware of the volatility. They can stop anyone from betting on these stocks without a reasonable cause.

Stock exchanges will move stocks into the Trade to Trade sector every two weeks. And quarterly evaluations will determine which stocks will enter and exit the section.

What is the trade-to-trade stock segment?

You may discover a list of stocks that are part of a trade-to-trade section. Hence, you can find it on the official page of the National stock exchange (NSE) & the Bombay stock exchange (BSE) websites. 

Both of these stock exchanges are in India. After receiving guidance from SEBI, stock exchanges decide which stocks can move to the trade-to-trade category (Securities exchange board of India). 

The entire goal of trade to trade is to prevent people from speculating on stocks. This way, small investors will avoid any erratic price swings. In this way, the trade-to-trade stock will function in the right manner. 

In the trade-to-trade market, share transactions occur on a delivery basis, both buying and selling, because of this, trading these stocks during the intraday period is impossible because you cannot sell them on the same trading day.

Let's imagine you purchase T2T shares today to sell them before the end of the trading session. You have placed a sell order; however, you cannot get the results you plan to get.

Before the T+2 settlement days have passed, you will be unable to sell these shares.

Criterions for shifting the shares in the trade-to-trade (T2T) segment

Now that you know what a "trade to trade" stock is, you may wonder what characteristics a "T2T stock" possesses. Before you transfer a stock into the T2T segment, the following are some of the most critical considerations to pay attention at:

1. P/E ratio of the stock

A stock's price-to-earnings ratio (P/E) is one of the most crucial elements in determining whether or not it will move into the T2T category. 

If the price-to-earnings ratio of a stock is greater than the P/E ratio of its respective index, the stock is then shifted to the T2T sector.

For instance, if the price-to-earnings ratio of the Nifty50 at a particular moment is between 15 and 20, a stock with a P/E ratio of more than 30 at that time is then shifted to the T2T segment.

2. Price variation 

When shifting stock into the T2T segment, the second key item to consider is how much its price changes. The T2T segment may be assigned to a stock by the exchange if the stock has significant price movement compared to its benchmark index.

For instance, a stock's price can shift to the T2T sector if it increases by more than 20% in a single day. Although the Sensex then moved by 2% over the same period!

3. Market capitalisation

Stock market capitalization is the third element that needs to occur before it is included in the T2T sector. If the current market value of a stock is less than 500 crores, the exchanges may consider placing it in the T2T segment of the market. 

Its main purpose is to discourage investors from excessive speculation on minor companies. Because the stocks are relatively small, their prices can manipulate very easily. 

Keep in mind that a stock will transfer to the T2T segment if it cannot trade in the Futures and Options (F&O) sector. This is an essential fact to keep in mind. 

It means that stocks are tradable in the F&O segment but not in the T2T segment. You cannot transfer it between the two markets. Additionally, the T2T requirements often do not apply to the sale of shares during an initial public offering (IPO).

How to identify T2T stocks?

Finding stocks that are likely to have a significant price increase can be a challenging task. When shopping for T2T stocks, several considerations should be given priority.

1. The market frequently places an unfairly low value on these shares. This indicates that the price they are currently trading may be lower than what they are truly worth. 

2. Secondly, the fundamentals of T2T companies are typically good. This indicates that they have a solid financial foundation and are well-positioned for growth in the years to come. 

3. Lastly, the volatility of T2T equities is lower than that of the market. Therefore, they may be an excellent option for individuals looking to invest their money in something with a lower risk level.

What happens to stock once you transfer it to the T2T segment?

Once you shift stock to the T2T segment, it is only eligible to trade on a delivery basis. The following is essential information regarding T2T stocks that you need to be aware of:

1. To trade a stock that is a T2T stock, it is important to take delivery of the stock first. You won't be able to trade these stocks during the day or night. This is because SEBI regulations state that they cannot transfer it to your Demat account until T+2 days have passed after the trade execution.

2. The exchange will reject your order if you try to buy and sell these stocks on the same day or the day after. This is because it has now become a day trade. It is only acceptable to sell a T2T stock once the delivery settlement ends on the second trading day after the T+2 day.

3. T2T stocks are unlike Z-group stocks. Even though both are focusing on delivery, Z-group stocks are the ones that have issues at the fundamental foundation of their business. Compared to the prospects for Z-group equities, those for T2T stocks are significantly more favorable.

4. After completing the quarterly review, a stock you transfer to the T2T segment is eligible to transfer back to the normal segment. The exchanges, with the help of the SEBI, are the ones that make this decision.

Things to consider while investing in T2T stocks

Would you like to invest some of your money in T2T stocks? T2T stocks have the potential to be a lucrative investment opportunity. But they also carry the risk of loss. Before making a choice, here are some considerations to consider.

1. Timing is of the utmost significance.

Because T2T stocks are notorious for their high level of volatility, you need to stay extreme caution before making any investments.

2. Be aware of your industry.

T2T stocks are typically only found in relatively obscure and low-volume businesses. Before investing, you should make sure you have a great understanding of the organization.

3. You should be ready for the long haul.

Individuals who are easily afraid should not invest in T2T equities. Since they might undergo significant shifts in a relatively short period, investing for the long term is essential.

4. Diversify the types of investments you make

You should only invest a little of your money in T2T stocks; just a little bit is plenty. You can reduce the overall risk to a certain extent by diversifying your financial holdings.

5. Come up with a strategy.

If you have an excellent strategy, investing in T2T stocks may be an excellent approach to help you achieve your financial objectives. Make sure you clearly understand your motivations before investing in T2 Technologies stock.

An example of a trade-to-trade segment 

Regarding intraday trading, a typical stock is easy to trade by a trader. However, this is different for trading stocks from segment to segment.

Let's have a look at an example. 

Let's say you are investing Rs. 17 in 1000 shares of XYZ stock, and then you sell those shares the very same day for Rs. 18. Trading during the same day results in a huge gain of one thousand rupees for you in this scenario!

If the same XYZ stock is also part of the trade-to-trade sector, you will not be able to sell it on the same day. You must pay the broker the total amount of Rs. 17,000 upfront.

The trades happening through national securities clearing corporations (NSCCL) are not established one by one.

Trade-to-trade stocks: calculation 

If a trader submits an order in the trade-to-trade sector and is subsequently void by the clearing member, the trader has to pay a fine of Rs. 1,000. 

The penalty for canceling a trade will be Rs. 2,000 if the clearing member is also participating in the purchasing and selling of the asset.

If the clearing member cannot settle the trade for any reason, that member has to get NSSCL's consent before submitting a request to move the settlement date.

Are there restrictions on selling T2T shares on the same day?

Trade to trade, also known as T2T, is a segment of the stock market in which shares can only be bought and sold based on delivery. 

This indicates that the stock cannot be taken as delivery on the same day that it is bought and sold since it takes too long to process the transaction. 

During the day, trading in T2T equities is unacceptable. When you buy and sell stocks during the trading hours of the same day, you are engaging in intraday trading.

Changing to T2T is typically done to end pointless stock speculation. 

Small investors are more likely to get caught up in equities that have big price changes. Thus SEBI is constantly skeptical of stocks having these kinds of changes.

Things that you need to pay attention to

1. It would be best if you didn't rely solely on anonymous tips

No matter how reliable the source may appear, it would help if you never took the advice of a stock marketing tip at face value. It would help if you were first conducting your independent investigation. 

Always select stocks only after conducting the necessary amount of study and analysis on both the companies who are investing in. Check the performance of those companies. 

The right advice can greatly assist you, but following the incorrect advice can place you in immediate jeopardy.

2. Get rid of any stocks that aren't performing very well in the market

There is no assurance that a stock will recover after suffering a significant price decline. Be aware that it is vital to have a practical outlook on the stock market regarding what can and cannot be done. 

When you realize that one of the stocks in your portfolio is not performing well, you should immediately acknowledge that you have made a mistake. Straight away, sell the stock to prevent further financial damage.

3. Do not exceed the limit of your budget.

We all know long-term investments are superior to those of other types. Thus, you shouldn't put more money into them than you can comfortably afford to. 

Instead, settle on a certain amount to invest and disperse that sum across several solid stocks. 

Spread your investment capital across several stocks and shares performing well rather than investing it all into one stock.

Is trade to trade segment secure for trading?

There is no straightforward response available regarding whether or not it is secure to purchase and sell Trade To Trade stock. 

It depends on various factors, including the type of stock or asset you are trading, the condition of the stock market at the time of trading, and the degree to which the trader is ready to accept risks.

However, the trade-to-trade market can be risky, particularly for traders who aren't regularly operating in this environment. 

This is because pricing in the trade-to-trade sector can be more volatile than in other market sectors. And there is less liquidity in this sector, making it more difficult to start and conclude deals.

If you are a professional willing to take on greater risk to identify possibilities, trade-to-trade can be a good location for you to look. 

Traders who are new to the market or feel uncomfortable taking on additional risk should focus on other market aspects.

FAQs

1. Are T2T stocks profitable investments?

The market regulator, SEBI, collaborates with the exchanges to monitor stocks whose prices are prone to wild swings or that move in an otherwise illogical manner. These stocks are placed in the T2T area to prevent individuals from speculating on them when they don't have to and to safeguard regular investors from becoming caught up in the volatility.

2. How long does a stock remain in the T2T category after entering the category?

T2T trading occurs for the first ten trading days after a stock is officially listed for trading. These shares will appear in your Demat account once two to three days have passed.

3. When is the best time to sell the T2T stock I own?

If you buy T2T stocks today, you can sell them once the T+2 settlement takes place. This is the case regardless of whether you own a margin account. Your order will be denied if you attempt to sell these shares on the same day or before they are deposited into the Demat account.

4. Will the next two days be a good time to sell my stock?

After the T+2 settlement, the sole option for a stock that has been purchased is to sell it. Your order will be rejected if you attempt to sell the stocks on the same day or before they are deposited into your DEMAT account.

Summary

Trade-to-Trade, also known as T2T, has the potential to be tremendously beneficial for both investors and public firms. It offers potential investors a secure location in which to put their money. 

It is possible to assist investors in withdrawing their funds from a publicly traded company, which benefits both the company and the investors.

In the realm of trading, we hope that you understand what trade-to-trade stocks are and what they mean from reading this blog.