The Trade to Trade (T2T) segment is a special category in the stock market. Here stocks are strictly traded on a “delivery basis”. This means when you buy shares in the T2T segment, you cannot sell them on the same day. The shares you buy must be delivered to your demat account, and if you wish to sell them, you can only do so on a different day.

It must be noted that this segment is particularly used for stocks that are more prone to price manipulation. Also, to reduce speculative trading and volatility, most T2T stocks are monitored closely by SEBI.

In this article, let’s understand the T2T segment in detail and learn how you can smartly trade T2T stocks and gain maximum benefit. Also, we will see which—and how frequently the stocks are moved to the T2T segment.

• Stocks in the T2T segment must be traded on a delivery basis, as intraday trading is not allowed.
• Stocks are shifted to the T2T segment based on rules related to P/E ratio, price variation, and market capitalisation.
• All T2T trades require full payment and mandatory delivery.

Stocks are shifted to the T2T segment based on certain criteria, such as P/E ratio, price variation, and market capitalisation. However, be aware that initial public offerings (IPOs) are generally excluded from these criteria. Let’s understand in detail:

• P/E of the stock
  A stock moves to the T2T segment if its Price-to-Earnings (P/E) ratio is significantly higher than the benchmark index. For example, say the Sensex P/E is 15-20 and the stock's P/E exceeds 30. This shows that the stock is “overvalued”. Such a stock can get shifted to the T2T segment.
• Price variation
  If a stock's price rises by more than 25% compared to the Sensex or its specific sector benchmark, it could be considered for the T2T segment. This prevents stock from deviating too much from market benchmarks. Also, such a shift reduces excessive volatility and speculative activities in the stock.
• Market capitalisation
  If a stock's market cap drops below Rs. 500 crore, it can get shifted to the T2T segment. This is usually done to prevent price manipulation. Smaller stocks are more vulnerable to speculative trading, so this measure helps control that risk.

How frequently are stocks moved to the T2T segment

Stocks are moved to the T2T segment on a fortnightly basis. The decisions to shift are made every quarter to either add or remove them. Once a stock is moved to T2T, its price movements are restricted within a fixed range (usually “+” or “-” 5%). This restriction is put in place for at least 22 trading days. However, it must be noted that if a stock does not meet the above-mentioned criteria, it cannot be shifted to the T2T segment.

One of the main rules in the T2T segment is that intraday trading is not allowed. For traders, this implies that they cannot take advantage of the short-term price movements. They will have to wait until the shares are delivered before selling them on a different day. This makes the T2T segment less attractive to day traders. However, most long-term investors are still very interested in the T2T segment. Let’s understand in detail how they can trade in this segment:

Buying shares

When purchasing shares in the T2T segment, you must;

• Pay the full amount upfront
  and
• Take delivery of the shares

Shares will be transferred to your demat account, and you cannot sell them on the same day. T2T segment trading is different from regular trading as no part-payment or margin trading is permitted. Therefore, you must have sufficient funds before buying.

Selling shares

Before selling shares, ensure the shares are already in your demat account. If you don’t have the shares in your account, the sale cannot be completed. Since intraday trading isn’t allowed in the T2T segment, you must wait for delivery.

Please note that selling shares without holding them leads to penalties and an auction process. Mostly, this results in significant financial losses.

No netting off

In the T2T segment, you cannot net off trades. This means you can't buy and sell shares within the same day. Once sold, the shares must be delivered by the T+1 date (one day after the trade). Failure to meet this deadline could again result in the shares going to auction.

Mandatory delivery and payment

All trades in the T2T segment must result in the delivery of shares. Investors cannot take advantage of strategies like:

• Buy Today, Sell Tomorrow (BTST)
  or
• Sell Today, Buy Tomorrow (STBT)

This rule ensures that each trade involves full payment and delivery. Also, it prevents speculative trading and focuses on actual ownership transfer.