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 nose, kind sir! Sure, Mother Nature,
With all her freaks, ne’er formed this feature.
If such were mine, I’d try and trade it,
And swear the gods had never made it.”
—Susanna Moodie (1803–1885)
“Some day I’ll claim to you how all used up
I am because of you but in the meantime the ride
Continues. Everyone is along for the ride,
It seems. Besides, what else is there?”
—John Ashbery (b. 1927)
“A sturdy lad from New Hampshire or Vermont who in turn tries all the professions, who teams it, farms it, peddles, keeps a school, preaches, edits a newspaper, goes to Congress, buys a township, and so forth, in successive years, and always like a cat falls on his feet, is worth a hundred of these city dolls. He walks abreast with his days and feels no shame in not “studying a profession,” for he does not postpone his life, but lives already.”
—Ralph Waldo Emerson (1803–1882)