markets

settlement

The completion of a financial transaction where securities are transferred from seller to buyer and cash moves in the opposite direction, typically T+2 for stocks.

Example

“Stock trades settle T+2 — buying on Monday means securities arrive and cash leaves Wednesday.”

Memory Tip

SETTLEMENT = when the trade is TRULY done. Securities and cash actually change hands.

Why It Matters

Settlement timing directly affects when you can actually use the money from selling securities or when you must have cash available to complete a purchase. Understanding settlement periods helps you plan cash flow and avoid failed transactions or margin calls.

Common Misconception

Many people believe they own securities or have access to cash immediately after placing a buy or sell order, but the transaction is not actually complete until settlement occurs, which can take several business days.

In Practice

If you sell 100 shares of stock on Monday at 50 dollars per share for 5,000 dollars total, you do not receive the cash until Wednesday (T+2). If you need that money on Tuesday, you cannot access it yet, and if you try to use unsettled funds to buy other securities, you may trigger a good faith violation.

Etymology

SETTLEMENT (final resolution, completion). The final SETTLEMENT of a trade — delivery of securities and payment.

Common Misspellings

settlemntsettlmentsettllement

Related Terms

clearing custodian

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