Source: Investopedia
by Linear
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Overview
In this article, we will introduce:
What do 'T' and 'T+n' mean?
What are Trade Date and Settlement Date?
Why delay actual settlement?
When do you actually own the stock or get the money?
What do 'T' and 'T+n' mean?
Whenever you buy or sell a stock, bond, exchange traded fund, or mutual fund, there are two important dates to understand: the trade date and the settlement date. 'T' is the trade date. The abbreviations T+1, T+2, and T+3 refer to the settlement dates of security transactions that occur on a trade date plus one day, plus two days, and plus three days, respectively.
What are Trade Date and Settlement Date?
Trade Date
'T' refers to the trade date. The trade date is the month, day, and year that an order is executed in the market. The trade date is therefore when an order to purchase, sell, or otherwise transact in a security is performed. A trade date is determined for all types of investment security transactions in the market.
Settlement Date
The settlement date is the date when a trade is final, and the buyer must make payment to the seller while the seller delivers the assets to the buyer.
The settlement date for stocks and bonds is usually two business days after the execution date (T+2).
For government securities and options, it's the next business day (T+1).
In spot foreign exchange (FX), the date is two business days after the transaction date.
Why delay actual settlement?
In the past, security transactions were done manually rather than electronically. Investors would wait for the delivery of a particular security, which was in actual certificate form, and payment happened upon receiving the certificate. Since delivery times could vary and prices always fluctuate, market regulators set a period of time in which securities and cash must be delivered.
When do you actually own the stock or get the money?
If you buy (or sell) a security with a T+2 settlement on Monday, and we assume there are no holidays during the week, the settlement date will be Wednesday, not Tuesday. The 'T' or transaction date is counted as a separate day.
Not every security will have the same settlement periods. All stocks and most mutual funds are currently T+2. However, bonds and some money market funds will vary between T+1, T+2, and T+3.
Comment(7)
thanks
Nice
is this new or always been around? I knew it took 2 dates but i assumed it was a benefit to the brokerage/front runner to place more transactions/trades... I thought, guess I was wrong. Thanks for the info
Excellent straightforward explanation, concept and lesson retained
This is always been around. In this article, we just give you an example and the exact rules depended on different stock markets.
I thank you. I feel that giving information to users is vary good.most important when no other good
communication. when working with people's money I don't understand how a company could stay in business with no decent COMMUNICATION. GOOD SHOW FOR YOUR HELP INFORMATION.
more more please please.thank you.
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