What are Trade-to-Trade Stocks? Important Points to Remember Before Investing in Them

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What are Trade-to-Trade Stocks?

What are Trade-to-Trade Stocks: Overview

Trade to trade stocks, also known as T2T stocks are stock segments that require to be delivered (T+2 settlement) which means that the stock cannot be traded on the same day. Hence, T2T segment shares are not qualified for intraday trading and one cannot square off the position. In this article, we are going to learn about what trade to trade, the trade-to-trade segment, and how to trade in the trade-to-trade segment.

What is the trade-to-trade segment?

The NSE (National stock exchange) and BSE (Bombay stock exchange) have a notice page on their site where you will find a list of stocks that have been moved to trade to trade segment. The decision of which stock to move to trade -to-trade segment is taken by the stock exchanges after taking advice from SEBI (Securities exchange board of India). The whole idea of trade to trade is to limit the non-essential speculation in the stock to safeguard the retail investors from getting caught in the irregular price movements. 

Trade to trade segment is a segment where shares are bought and sold on a delivery basis which means these stocks are cannot be sold on the same day or not qualified for intraday trading. 

Let's say you buy T2T shares today and you want to sell them on the same day then you place a sell order, but your order will not be executed.  you can sell these shares only after the T+2 settlement days. 

Example of a trade-to-trade segment

A trader can trade a normal stock for intraday trading but it is not the same case for stocks from trade to trade segment. 

Let's understand with an example, let's say you bought 1000 shares of XYZ stock at Rs. 17 and sold them at Rs. 18 on the same trading day. Here, you made a profit of Rs.1000 in intraday trading. 

Now, if the same XYZ stock falls under trade to trade segment you cannot sell them on the same day and have to make full payment of Rs. 17,000 to the broker. 

The NSCCL (National securities clearing corporations) do not settle a trade on a trade-to-trade basis. 

Trade-to-Trade Stocks: Calculation 

If an order is carried out in the trade to trade segment and the clearing member revokes it, then the trader has to pay a penalty which is Rs. 1000. If the clearing member participates in both buying and selling then the penalty will be Rs. 2000 for such trade cancellation. 

By any chance the clearing member is not able to settle the trade due to some inevitable reasons, the member is supposed to take the endorsement of NSSCL for requesting postponing the settlement date. 

Key takeaways: 

  • If you buy stocks from the T2T category, you can sell them only after T+2 settlement days. 
  • Stocks are put into trade to trade segments to restrict the unnecessary assumption and speculation about such stocks. 
  • T2T stocks are not eligible for trading in the future & options segment. 

What are Trade-to-Trade Stocks: Criteria for Inclusion

The decision of moving stocks to/from trade to trade segment is taken by both stock exchanges and SEBI after having a discussion. Moving of stocks to the trade to trade segment is usually done every two weeks and these stocks can be removed from the T2T segment to the normal segment based on quarterly evaluation which is done by stock exchanges with the collaboration of SEBI. 

The measures for the stocks to be transferred to the trade-to-trade segment (T2T) are: 

  • P/E: Stock P/E is one of the important measures for moving the shares in the trade to the trade stock segment. For instance, if the P/E of a stock is more than 40 while the P/E of Nifty is 20 then the stock can be chosen for shifting to trade to trade because the stock is considered to be overvalued. 
  • Price variation: price variation in the stock price and the index which is benchmarked can be a reason for shifting to T2T. Let's say a stock price is nearly 30% higher than the index or a particular sector to which it is benchmarked then the stock can be moved to trade to trade segment because the price of the stock should not be varied in a large number to the benchmark index. 
  • Market capitalization: A stock is considered to move to trade to trade segment when its market capitalization falls to below 5,000 crores however these rules are not applied for Initial public offerings (IPO). 

Few things to keep in mind when you trade in T2T segment stocks

  • If you trade shares in the T2T segment, you must pay the full amount otherwise you will be charged a penalty by the broker and stock exchange. 
  • When you sell shares, you must make sure that you have the delivery in your Demat account as your order placed will be rejected if you do not have the delivery. 
  • You cannot buy and sell these stocks on the same day or intraday trading is not allowed in T2T stocks. You can sell these shares only after T+2 (trading day + 2 days). 
  • When stocks are transferred to the T2T segment, the circuit calculations are fixed at +5% or -5%. This is done to decrease the instability to continue at a certain level. 

To conclude, investors should be aware of the T2T segment list in the stock market to keep themselves away from risky stocks, however, investors do not get a chance to exit the stock, once they enter the tt segment shares. 
Important things to remember:

1. Do Not Blindly Follow Hot Tips

No matter how credible the source is, never follow a stock marketing tip blindly without conducting thorough research personally. Always select the stocks after doing proper research and analysis on the performance as well as the companies. While some tips can work out to give you huge benefits, the wrong ones can push you down under the risk pretty quickly. 

2. Eliminate Loser Stocks from Portfolio 

There is absolutely no guarantee that a stock will rise after a great fall. Know that it is extremely important to be practical about what is possible and what's impossible in the stock market. So, upon realizing that a stock is performing poorly in your portfolio, accept your mistake and sell it immediately to prevent further losses. 

3. Don't Exceed Your Investment Budget Abruptly 

While it's true that long-term investments are way better than other forms of investment, you shouldn't exceed your investment budget in a haste. Instead, decide on a fixed amount and invest it across various good stocks. Rather than investing in only one stock, divide your budget evenly across multiple good-performing stocks and shares. 

  • What is T2T stock?

  • What is trade to category stock?

  • How can I sell my T2T stocks?

  • Can stock be removed from the T2T segment to normal trade?

  • What are TT segment shares?