What are T2T stocks? How to trade in it?
Created on 15 Apr 2022
Wraps up in 4 Min
Read by 4.1k people
Updated on 12 Sep 2023
Have you ever purchased something on Amazon just to discover that it is not what you expected? Only to discover later that it cannot be returned and that you are stuck with it. What if the same thing happened to the stocks you purchased?
What if you discover that if you buy a certain segment of shares, you won't be able to square your position in them unless you meet certain conditions, even if the transaction results in a big loss for you?
Isn't it shocking? You might wonder, “I can't sell my positions on the stock market, which is known for having the best liquidity?” No, you can't. That's because T2T stocks cannot be traded intraday. These stocks can only be sold after delivery which takes T+2 days.
This segment is called T2T, and there might be shares in your portfolio that may belong to them. Let's find out more about this segment which might help you in becoming a cautious and successful investor.
Understanding T2T Trade
Shares that are extremely speculative and receptive or susceptive to price manipulation are moved to the T2T or Trade to Trade segment. Intraday and BTST trades are not allowed in this segment. Delivery of the shares is compulsory whenever taking a trade in this segment.
The shares are transferred to your account according to the T+2 delivery mechanism. This is a segment made in order to curb speculation and maintain a market where there are no erratic price movements.
Criteria for T2T Segment
Only shares that are not accessible for trading in the F&O or derivatives segments can be moved to the T2T section. As a result, the shares traded in derivatives can never be transferred to the T2T section.
Shifting of shares to the T2T segment is generally done on a fortnightly basis, and the review of the shares for shifting to and from the T2T segment is done not on one but 3 specific criteria on a quarterly basis by NSE and BSE. And each of these criteria is used conditionally.
1. P/E Overvaluation- Let's assume the P/E multiple of the Nifty is approximately 20-25, and the stock under evaluation has a P/E multiple of 50, it will be considered overvalued on the NSE. Depending on the other two conditions, such overvalued equities may be shifted to the T2T category.
2. Price Variation- If the price variation of the particular stock is nearly 25% more than that of Sensex or the Benchmark index of the particular stock, then it will be considered for transfer to the T2T segment. The Variation must be in the direction of Sensex.
3. Market Capitalisation- If a stock's market capitalization falls below 500 crores, it may be evaluated for inclusion in the T2T category. With the exception of new IPOs, allowing intraday trading on such equities could result in a lot of volatility in the stock, as well as capital erosion and price manipulation.
Companies can be relocated from the T2T section to the normal segment, just as they may be shifted from the normal segment to theT2T segment. This is based on the exchange's quarterly evaluation, which is conducted in collaboration with SEBI.
When a stock is shifted to the T2T segment, only delivery trades are allowed in that particular stock. No intraday or BTST or STBT trades are allowed. You have to take the delivery of the share in your Demat Account.
Some Things that you need to keep in mind while dealing with T2T stocks-
1. Whenever you buy a share in the T2T segment, you have to take delivery of the share and have to pay all the amount by the End Of the Day (EOD). Otherwise, you would have to bear penalty charges levied by the broker and exchange.
2. You must ensure that you have received the delivery in your Demat account before selling a T2T stock. Otherwise, your order will be cancelled. If your shares are sold at auction, your losses, in addition to the fines, could be significant.
3. Intraday trading is not permitted in these stocks, many brokers inform you that before executing a trade. But in case you accidentally buy a T2T share, then covering your position could incur huge losses for you.
4. Many traders these days indulge in BTST and STBT trades. But doing so is not permitted in the T2T category. Since trades in this category always lead to the delivery of shares, BTST or STBT is not technically possible.
5. When stocks are shifted to the T2T category, the circuit measures are pegged at ±5%. This is majorly done to reduce the volatility, so that they maintain a certain level.
The list of stocks that have been transferred to the T2T segment can be found on the NSE as well as the BSE website. And many trading platforms provide a disclaimer before trading in such companies.
So beware whenever buying a T2T stock, so that you do not get stuck in and unnecessarily incur losses and harm to your finances.
That was all about T2T stocks. I hope this information assists you in becoming a better investor in general.
In conclusion, T2T stocks are a unique investment opportunity that can provide significant returns for investors. These stocks are traded in a separate segment of the stock market and are subject to stricter regulations, making them less risky than other stocks. However, they also require a higher level of due diligence and research before investing, as they are often smaller companies with less liquidity and limited information available to the public.
Investors should carefully consider their risk tolerance and investment goals before investing in T2T stocks, and should seek the advice of a financial professional if necessary. With the right approach and a sound investment strategy, T2T stocks can be a valuable addition to any investment portfolio.
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