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T2T Trade Secrets Every Trader Should Know

Delving into the Notices page of BSE or NSE reveals a list of companies transferred to the T2T segment, a move aimed at curbing speculation. Let’s unravel the complexities surrounding T2T stocks.

Criteria for T2T Transfer

Understanding the parameters guiding the shift to T2T is crucial. Only stocks absent from F&O trading are considered. Transfers occur fortnightly or quarterly, based on criteria like P/E overvaluation, price variation, and market capitalization.

P/E Overvaluation

When Sensex P/E is 15-20 and a stock’s P/E exceeds 30, it’s considered for T2T. The trailing EPS of the last four quarters is pivotal in this assessment.

Read: Understanding Earning Yields and P/E Ratio

Price Variation

If a stock’s price swings 25% more than Sensex or its benchmarked sectoral index, it’s a candidate for T2T, provided the variation aligns with the Sensex direction.

Market Capitalization

Stocks with a market cap below Rs.500 crore face T2T consideration. The goal is to curb speculation in smaller stocks vulnerable to manipulation.

Shift Dynamics

Quarterly assessments determine if a stock moves from T2T to the normal segment, emphasizing a dynamic review process.

T2T Trading Essentials

Understanding T2T trading involves recognizing that only delivery trades are allowed. Intraday squaring isn’t permitted, shaping the following key aspects:

  1. Compulsory Delivery on Purchase: Buying a T2T stock mandates taking delivery by the end of the day. Failure results in selling by the broker on T+2, with potential penalties.
  2. Delivery Check on Sale: Selling a T2T stock requires having delivery in your demat account. You can’t buy it back the same day, and failure to deliver prompts auctioning with potential large losses.
  3. No Intraday Trading: T2T stocks prohibit intraday trading, offering no room for covering positions once a trade is executed.
  4. No Scope for BTST/STBT Trades: Unlike common industry practices, T2T stocks eliminate the possibility of Buy Today Sell Tomorrow (BTST) or Sell Today Buy Tomorrow (STBT) trades.
  5. T2T vs. Z-group Stocks: T2T stocks, while delivery-based like Z-group stocks, differ as they comply with listing agreements, making them a more reliable option.

Circuit Filters in T2T Stocks

When a stock transitions to the T2T segment, circuit filters are set at ±5%, ensuring automatic volatility control within this range.

Additional Insights

As of December 12, 2023, the T list comprises a total of 270 stocks. The fundamental implication is that the stocks included in this list should not exhibit a deviation beyond 5% in either direction.

Conclusion

Understanding the dynamics of T2T stocks is crucial for investors navigating the market. As a delivery-centric segment, T2T trading demands adherence to specific rules, offering a unique perspective on market dynamics and risk management.

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