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What are Trade to Trade or T2T stocks

01 Dec 2023

Introduction 

In the realm of trading, delving into Trade to Trade (T2T) stocks opens up a unique avenue for investors. These particular stocks, subject to mandatory delivery and strict trading regulations, offer a distinct set of opportunities and challenges that warrant exploration. Read on to learn more.

Where do T group stocks come from?

NSE and BSE organise stocks into categories to safeguard investor interests and maintain transparency in trading. Stock exchanges choose which stocks can be moved to the T2T category after consulting with SEBI (Securities exchange board of India). The stock classifications are called Series on the NSE and Groups (A, B, T, and Z) on the BSE.

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BSE T group stocks are those that come under the T2T segment. Trading in these stocks as a part of intraday is prohibited. The T2T stocks can only be available on a delivery basis, meaning the buyer must accept the delivery of the shares.

What do you mean by T2T stocks?

T2T stocks are a particular kind of securities on the stock market. These stocks have more regulations than traditional stocks since they are listed in the T2T sector under the 'T' group. T2T stocks mandate that each transaction must result in the actual delivery of shares within the T+2 settlement. They frequently have higher levels of volatility to control price variations. To increase market transparency and safeguard investor interests in potentially risky or illiquid stocks, stocks are added to the T2T section.

How does T+2 settlement affect T2T stocks?

This implies that trading in these stocks on the same day is unacceptable. In the Buy Today Sell Tomorrow option, everyday trading is not an option. As a result, until the T+2 settlement, you won't be able to sell any T2T stocks you acquire today. If you attempt to sell these stocks on the same day or before depositing them into your Demat account, your order may be cancelled.

Who regulates T2T stocks?

Organisations in charge of market regulation include the stock exchanges and SEBI. They pay special attention to stock prices that fluctuate quickly or unusually. So that investors are aware of the market volatility, they place stocks in the T2T sector. Authorities can prevent anyone from betting on these stocks without justification or reasoning. Every two weeks, stock exchanges will place new stocks in the T2T sector. Additionally, which stocks enter and leave the segment will be decided under quarterly evaluations.

What are the criteria to shift shares in the T2T?

Depending on the particular stock exchange and its rules, the requirements for transferring shares into the T2T section can differ. However, some common reasons could cause shares to move into this category. They include –

  1. Price Criteria: The price of the stock could be a deciding factor. The stock may be moved to the T2T section if its price drops below a pre-set limit established by the exchange. This criterion aids in controlling the inclusion of cheap stocks.
  2. Market Capitalisation: For the T2T segment, stocks with small market capitalisations or infrequent trading volumes may be considered. This reduces the risk of default, ensures trades are efficiently resolved, and prevents the trading of illiquid stocks freely. Remember that if a stock cannot trade in the Futures and Options (F&O) sector, it will shift to the T2T segment. The transfer between the two markets is not possible.
  3. Stock’s P/E Ratio: One of the most critical factors in evaluating whether a stock will enter the T2T category is its price-to-earnings ratio (P/E). A stock is moved to the T2T sector if its price-to-earnings ratio exceeds the P/E ratio of its linked index.

To conclude

T2T stocks can present a profit potential, but their inherent volatility also involves higher risks. When considering trading in T2T equities, investors should use precaution and careful consideration. Investors should ensure they know the risks and restrictions before entering the market.

 

Related Articles: Using futures as a form of Margin Trading in Stocks | What is Mark to Market Margin in Futures and Options and when is it Applicable? | The importance of operating margins for a company

 

 

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