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:
“Literature flourishes best when it is half a trade and half an art.”
—W.R. (William Ralph)
““And how many hours a day did you do lessons?” said Alice, in a hurry to change the subject.
“Ten hours the first day,” said the Mock Turtle: “nine the next, and so on.”
“What a curious plan!” exclaimed Alice.
“That’s the reason they’re called lessons,” the Gryphon remarked: “because they lessen from day to day.””
—Lewis Carroll [Charles Lutwidge Dodgson] (1832–1898)
“What are days for?
Days are where we live.
They come, they wake us
Time and time over.
They are to be happy in:
Where can we live but days?”
—Philip Larkin (1922–1986)