What is Settlement (T+1)?
Hisob-kitob (T+1)
In short
The official transfer of shares and cash after a trade. In the US it has been one business day after the trade (T+1) since May 2024.
Also known as: T+1
Settlement is the official transfer of the shares to the buyer and the cash to the seller after a trade. When you press "Buy", the order executes almost instantly, but the legal transfer of ownership comes a little later. In the US, since May 2024, that period has been T+1: one business day after the trade date (T).
Why it matters
- When your cash is ready. When you sell, the proceeds are "unsettled" at first. To withdraw them you must wait for settlement.
- Cash-account rules. In a cash account, if you buy a stock with unsettled money and sell that new stock before the money has settled, your broker may treat it as a violation (a good-faith violation) and restrict the account for a while.
- Dividends. To receive a dividend, the shares must be settled in your name on the record date. Under T+1 the ex-dividend date usually falls on the record date — so you need to buy at least one business day before the ex-dividend date.
What a business day means
Only days the exchange is open count: weekends and US holidays do not. A trade made on Friday settles on Monday.
Settlement looks like the broker's back-office business, but anyone who trades actively in a cash account or plans withdrawals needs to understand T+1.
Example
A fictional cash account holds $1,000.
- Monday: you sell stock A for $1,000. The cash shows in your account, but settlement is on Tuesday.
- Monday: you use that $1,000 to buy stock B — usually allowed.
- If you sell B on the same Monday, the money used to pay for it has not settled yet → this can be a good-faith violation.
- If you sell B on Tuesday or later, there is no problem.
Proceeds from a stock sold on Friday settle on Monday (Saturday and Sunday do not count). If Monday is a holiday, on Tuesday.
Mistakes and tips
When planning a withdrawal, allow at least one business day for settlement plus a few more days for the bank transfer.
If you trade in and out repeatedly in a cash account, read your broker's rules on unsettled funds.
Buying on the ex-dividend date itself is too late for the dividend — buy one business day earlier.
Frequently asked questions
- What does T+1 mean?
- The shares and cash officially change hands on the first business day after the trade date. A Wednesday trade, for example, settles on Thursday.
- When can I withdraw the money from selling a stock?
- After settlement, usually from the next business day. Add your broker's withdrawal processing and bank transfer time on top.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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