Trade Day + 3 Days
In the United States, stocks take three days to settle. If you buy on Monday, you don't pay for the purchase until Thursday. This is known as trade day plus 3 days or T+3.
This three day settlement period is considered an extension of credit from the broker to the customer. Because the transaction is considered a credit issue, the Federal Reserve Board is responsible for the rule which is officially called Regulation T.
If a brokerage customer is approved for margin on the account there will be a line of credit to "cushion" the three day settlement period. This credit allows customers to trade while the cash settles. For accounts without margin (cash accounts), stock traders must have enough cash in the account to pay for any purchases the day they are due. A client in good faith agrees to make full payment of settled funds or deposit securities within the three day settlement period and not to sell before making such payment.
Read more about this topic: Free Riding
Famous quotes containing the words trade, day and/or days:
“a highly respectable gondolier,
Who promised the Royal babe to rear
And teach him the trade of a timoneer
With his own beloved brattling.”
—Sir William Schwenck Gilbert (1836–1911)
“Do not forsake your friend or the friend of your parent; do not go to the house of your kindred in the day of your calamity. Better is a neighbor who is nearby than kindred who are far away.”
—Bible: Hebrew, Proverbs 27:10.
“Oft, in the stilly night, Ere Slumber’s chain has bound me, Fond Memory brings the light Of other days around me.”
—Thomas Moore (1779–1852)