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)
“Then down came the lid—the day was lost, for art, at Sarajevo. World-politics stepped in, and a war was started which has not ended yet: a “war to end war.” But it merely ended art. It did not end war.”
—Wyndham Lewis (1882–1957)
“The others died, the luck of it blurting through them.
I could not, I was a silly broken umbrella
and oblivion would not kiss me. For three days it
was thus.”
—Anne Sexton (1928–1974)