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)
“[T]hat moment of evening when the light and the darkness are so evenly balanced that the constraint of day and the suspense of night neutralize each other, leaving absolute mental liberty. It is then that the plight of being alive becomes attenuated to its least possible dimensions.”
—Thomas Hardy (1840–1928)
“You must not eat with it anything leavened. For seven days you shall eat unleavened bread with it -the bread of affliction -because you came out of the land of Egypt in great haste, so that all the days of your life you may remember the day of your departure from the land of Egypt.”
—Bible: Hebrew, Deuteronomy 16:3.