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:
“Experience has shown that the trade of the East is the key to national wealth and influence.”
—Chester A. Arthur (1829–1886)
“It is easy and dismally enervating to think of opposition as merely perverse or actually evil—far more invigorating to see it as essential for honing the mind, and as a positive good in itself. For the day that moral issues cease to be fought over is the day the word “human” disappears from the race.”
—Jill Tweedie (b. 1936)
“The tenth day of Christmas,
My true love sent to me
Ten pipers piping,”
—Unknown. The Twelve Days of Christmas (l. 64–66)