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:
“Though in the trade of war I have slain men,
Yet do I hold it very stuff o’ the conscience
To do no contrived murder. I lack iniquity
Sometimes to do me service.”
—William Shakespeare (1564–1616)
“To read well, that is, to read true books in a true spirit, is a noble exercise, and one that will task the reader more than any exercise which the customs of the day esteem. It requires a training such as the athletes underwent, the steady intention almost of the whole life to this object.”
—Henry David Thoreau (1817–1862)
“We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.”
—John McCrae (1872–1918)