So while your trade date to sell 100 shares of a stock might be, say, Monday, August 23, 2021, the cash from the sale might not officially be settled into your account until the settlement date of Wednesday, August 25, 2021. Even if your account shows the cash from the transaction following the trade date, you might not be able to use the cash until the settlement date. The use of such funds to enter another transaction may entail what is termed as a “good-faith violation.” The trade date might also mark when a bid to purchase securities is accepted, but those stocks, bonds, or other assets could still take time to settle into your account. This trade date vs. settlement date occurrence is similar to how it can take a few days between when a check deposit is received and when the cash settles in your bank account. Modern stock trading is more technologically advanced than it used to be—you don’t need to physically transfer stock certificates, for example. Still, there are multiple entities involved in the trading process, ranging from brokers to stock exchanges to the National Securities Clearing Corporation (NSCC), which ultimately handles most stock and bond trades. So while the trade might be accepted almost instantly (marking the trade date), the settlement date would likely come later. Your broker generally can’t just take possession of stocks you purchased right away but rather needs to wait for the NSCC to clear the trade. Without clearing, the trade might not go through properly. A buyer might not have the cash to complete a trade even though they agreed to it, much like a check might not clear if the check writer does not have sufficient funds in their account. If you sell stock on Friday, for example, your broker would have until Tuesday to settle the cash within your account, since that’s two business days after the trade date. So if you need to sell assets to have cash by the weekend, you might want to do so earlier in the week. The good news is that this timeline between the trade date and settlement date is shrinking. In 2017, the U.S. switched from T+3 to T+2, and work is underway to shorten that time to T+1 in the coming years. Once the trade is settled, you should receive a confirmation.
What Does the Trade Date Mean for Individual Investors?
If you know when the trade date occurs, then you can know when the settlement date must occur, keeping in mind that the rules can vary by country and security type. Knowing the difference between the trade date and settlement date can also help investors understand their finances better and avoid a mistake, like thinking they have cash on hand before a trade settles.
