What Are T2T Stocks?

T2T stocks mean trade to trade stocks. The stock market of India has categorized these stocks with certain rules upon trading. Stocks can only be traded on a delivery basis. You have to hold them until they get delivered to your Demat account while buying them. Trade-to-trade stock means you cannot sell on the same day of purchase; the sale has to be settled on the next trading day when the shares arrive in your Demat account. This seeks to limit speculation and keep investors away from price manipulation and fluctuation in markets. Intraday trading and short selling are not allowed on T2T stocks. In this article, we will explain what is trade to trade stocks in detail.

How to Identify T2T Stocks?

Now, that you know what is t2t stock, let’s find out how to identify T2T stocks. To list the T2T shares, understand how the stock exchanges classify all kinds of securities. Their lists for such types of stocks are generally advertised periodically on the websites of the NSE and Bombay Stock Exchange. There are some major indicators by which a T2T share can be identified, as follows. 

• Check exchange lists: Refresh yourself periodically by checking the NSE and BSE websites in quest of updated lists of T2T stocks.
• Price-to-earnings ratio (P/E ratio): Stocks with a much higher P/E ratio than the average market can be put into the T2T category. Where if the average P/E is somewhere in the range of 10-15 and the P/E for one particular stock is 25, it gets categorized into the T2T segment.
• Market capitalization: Those whose market capitalization is below Rs. 500 crores tend to be taken into the T2T as such stocks are more vulnerable to manipulations.
• Price movement: If the price movement of a stock is too different from the benchmark indices like Sensex or Nifty, chances are that the same could be shifted to the T2T.
• Trading volume: Low volumes in trading might indicate manipulation and make it a T2T one as well.

Example of T2T

To understand how T2T shares work, let's take this example. Suppose you have purchased 1,000 shares of Company A at ₹100. Since Company A is a T2T stock, you would have spent ₹100,000 for this buy. You couldn't sell on the same day since such shares have to be received in your Demat account on T+1. Only after receiving them can you sell them if you so want. 

This means that if you want to sell those shares after buying them, you must wait till it is credited to the account officially before any selling orders can be executed.

How Frequently are the Stocks Classified as T2T?

The stocks are reviewed regularly for moving into or out of the category T2T. 

• Fortnightly Reviews: The exchanges review at fortnight intervals whether to include or exclude specific stocks in the list T2T based on their performance and levels of volatility.
• Quarterly Evaluations: Apart from fortnightly reviews, quarterly reviews also contribute to establishing long-term stock classification shifts. 

Only those stocks qualify for existence in the T2T segment that fulfils specific criteria. The reviews maintain market integrity and guard investors.

Criteria for Transferring a Stock to T2T

There are many criteria that decide whether a stock should be shifted to the T2T category. Some of them are as follows. 

• High P/E ratio: A stock with a P/E ratio that is significantly high against an average of the market P/E ratio (like above 25 if the average value is around 15), can be transferred to T2T.
• Market capitalization: Stocks with a market capitalization of less than INR 500 crores can be more prone to get shifted as it is relatively easier to manipulate the price.
• Extreme price movement: If a stock's price moves by about 25% more on any given day compared to the benchmark indices, this may be T2T.
• Trading volume and volatility: A stock that trades at low volume or has high volatility can also make it to the T2T category.
• Recent corporate actions: Major corporate actions, such as mergers or acquisitions, can also lead to reclassification into T2T.

Things to Note When Trading in T2T Stocks

The following are to be kept in mind while trading in trade-to-trade stocks.

• No intraday trading: You cannot buy and sell this stock on the same day; you must take delivery of the assets.
• Delivery-based trading only: You should always keep a sufficient balance in your account because you will receive the delivery of all the traded assets.
• Lower liquidity: Keep in mind that some T2T stocks can have lower liquidity, and therefore, rapid buying or selling might not be possible.
• Price volatility: Even though created to be stable, some T2T stocks can quite often be seen with great price volatility.
• Regulatory compliance: Obtain proper knowledge about the SEBI rules governing the trading of such stocks.

How to Trade in the T2T Segment? 

Trading in the T2T segment proceeds in the following steps. 

1. Open a Demat account: Obtain a current and active Demat account in which shares are to be credited in case of purchase.
2. Shortlist stocks: In finding out the stocks that are available for trading in the T2T segment, you may refer to the list coming from the exchange as well as the criteria discussed above.
3. Make buy orders: For purchasing T2T stocks, ensure that you have enough funds since the payment made has to cover delivery charges.
4. Await delivery: Once you purchase, you must wait til the delivery of shares in your Demat account.
5. Sell after delivery: Once the shares are delivered, you can enter sell orders as per your investment strategy on the same trading day.
6. Keep track of market trends: Always be updated with market trends and news that may affect your chosen stocks.

How to Sell T2T Stocks?

As T2T stocks are delivery-based, it can be a little bit trickier to sell than usual. Here’s how to sell t2t stocks. 

1. Wait for delivery: Post the purchase of T2T stocks, one will have to wait until the shares are credited to the demat account. This normally takes one trading day, T+1.
2. Check Delivery of Stocks: Before you try to sell, confirm that your order has been credited to your Demat account successfully.
3. Place a sell order: Once the shares are credited to your Demat account, you can place a sell order using the trading platform.
4. No same-day selling: Also, remember that T2T stocks cannot be sold on the very same day when you buy them or before they are credited. Any such attempt will simply be rejected by your order.
5. Complete the trade: Now that you have completed your sell order, you just have to wait until it executes. The funds will be credited to your trading account after the trade is complete. 

By going through these simple steps, you can buy and sell T2T stocks in the marketplace while strictly following all regulations.

Conclusion
T2T stocks, in brief, stabilize India's stock market by enforcing strict trading regulations, which work to limit speculation and prevent investors from getting priced out. Therefore, whoever likes to invest in the T2T stock should know how the stock functions, under what criteria they are identified, and what trading rules apply to them. With a suitable share market app and with appropriate guidance and awareness about the market condition, the issues that arise in T2T trade can be easier to deal with.