Key takeaways
- The trade date is when an order executes; the settlement date is when cash and securities actually change hands.
- Since 28 May 2024, the standard US settlement cycle for most securities has been T+1: one business day after the trade date.
- Before that, the cycle had been T+2 since 2017.
- T+1 applies to stocks, bonds, municipal securities, ETFs, certain mutual funds and exchange-traded limited partnerships.
- In a cash account, using unsettled proceeds carelessly can cause a good faith violation or a 90-day restriction.
When your order to buy a share executes, the trade is not finished. The cash and the shares still have to move between accounts, and that formal exchange, settlement, happens later. In the United States, it now happens one business day later, a cycle known as T+1.
Trade date and settlement date
FINRA defines the two dates simply:
- Trade date (T): the day your order to buy or sell is executed.
- Settlement date: the day the transaction is finalised, when funds and securities must be delivered.
The SEC's investor bulletin describes settlement as the official transfer of the securities to the buyer's account and the cash to the seller's.
From T+2 to T+1
The SEC adopted rule amendments on 15 February 2023 to shorten the standard settlement cycle from two business days to one, with a compliance date of 28 May 2024. Since 2017 the cycle had been T+2: sell on Monday, settle on Wednesday. Under T+1, sell on Monday and the trade settles on Tuesday.
FINRA explains the reasoning: over the years the SEC has shortened the cycle as technology made faster settlement possible, and with most trading and banking now online, extra days to physically deliver securities or funds are no longer needed.
| Trade executed | Settles under T+1 |
|---|---|
| Monday | Tuesday |
| Thursday | Friday |
| Friday | Monday (next business day) |
| Day before a market holiday | Next business day after the holiday |
Weekends and market holidays are not business days, so they push settlement later.
What T+1 covers
According to the SEC bulletin, T+1 applies to the same transactions T+2 covered, including stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds and limited partnerships that trade on an exchange. FINRA adds options and US government securities. Because the lists name only "certain" mutual funds, a fund's own documents are the place to check its timing.
What it means for you
Paying for purchases. FINRA notes that under T+1 your firm must receive payment no later than one business day after the trade. If you fund purchases by bank transfer (ACH), it advises starting the transfer on the trade date so the funds arrive in time, and notes that simply initiating a transfer does not count as payment: the money must actually reach the firm.
Delivering shares you sell. If your shares are held electronically at your broker, the broker delivers them. If you still hold a paper certificate, which FINRA describes as increasingly rare, you need to get it to your broker in time.
Cash accounts. Settlement rules matter most here. FINRA's guidance on frequent trading explains two problems:
- Free-riding: buying and selling a security before paying for it, a violation of the Federal Reserve's Regulation T that can lead to strict account restrictions.
- Good faith violation: buying with the proceeds of a sale that has not settled yet, then selling the new purchase before those proceeds settle.
Cash account versus margin account covers these rules and the 90-day restriction that can follow.
Dividends. Investor.gov notes that the ex-dividend date for stocks is usually set as the record date, or one business day before it if the record date is not a business day. Buy before the ex-dividend date and you get the dividend; buy on or after it and the seller does. How dividends work explains the dates.
A worked timeline in a cash account
Suppose you hold shares of Company A and want to switch into Company B, using a cash account and only the money from the sale.
- Monday: you sell Company A. The proceeds will settle on Tuesday.
- Monday, later: your broker lets you buy Company B with the unsettled proceeds. That purchase settles on Tuesday too, paid for by the Company A money arriving the same day.
- Monday, still later: if you now sell Company B before Tuesday's settlement of the Company A proceeds, you have sold a security bought with funds that had not yet settled. FINRA calls this a good faith violation.
- Tuesday or later: selling Company B from Tuesday onwards avoids the problem, because the money used to buy it has settled.
Brokers differ in how they display "settled cash" and "buying power", so check which figure your account shows before trading the same money twice in a day.
Settlement as the last step of an order
Settlement is the last step in the journey of an order described in how the stock market works. A simulator does not reproduce settlement, but Learn to Trade Stocks Beginner lets you practise orders and positions with a virtual balance. It is one of our education apps; the investing basics hub lists the related account guides.
Good to know
Frequently asked questions
What does T+1 mean?
When did the US switch to T+1?
If I sell on Friday, when does it settle?
Can I use money from a sale before it settles?
Sources
- New "T+1" Settlement Cycle – What Investors Need To Know: Investor Bulletin (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Understanding Settlement Cycles (opens in a new tab)FINRA — accessed
- Frequent Intraday Trading: Understanding the Basics (opens in a new tab)FINRA — accessed
- Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
About the author
Reign Creative LLC — The independent app studio that builds the apps covered on this site and publishes every article here. On Google Play it publishes as Reign Collective Apps.
We use AI tools to help research, draft and edit our articles. Each article lists the sources its factual claims rely on, and details about our apps come from their live Google Play listings. No article on this site has been reviewed by an independent expert unless the reviewer is named on it.
No person at Reign Creative LLC has read this article in full. It was published after automated checks and an AI editorial review, which are described in our editorial policy and are not the same as a person reading every sentence.
Spotted an error? Tell us — how corrections are handled is set out in our editorial policy.