Settlement Date and Freeriding

What is a trade date?

The trade date is the day your trade (buy or sell) executes. If you place a trade during market hours, your order goes to the stock exchange right away. The time it takes to fill your order depends on the order type you chose to use (market, limit, or stop-loss).

To recap, the day your order executes is referred to as the trade date.

You'll know if your trade has executed because a trade confirmation will post to your account right after your order is filled. Three days after the trade date (it's called T + 3), your order will settle, which completes the transaction.

Tip: Bank-only holidays like Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, check out our Holiday and Trading Calendar.

What is the settlement date?

Time is money in the financial world, so we stay pretty busy around here. That said, once a trade executes, we do need a day (or three) to "clear" the transaction and pass the funds from buyer to seller. The "settlement date" is the day we promise to have that work completed:

  • Stocks and ETFs – 3 market days after trade date.
  • Mutual Funds – 1 market day after trade date.
  • Options – 1 market day after trade date.

Are you a frequent trader? There are federal laws regarding the buying or selling of shares during the settlement period. To avoid trouble, get to know Regulation T.

Tip: Bank-only holidays such as Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

What's the difference between trade date and settlement date?

When you buy or sell a security, the trade date is the day your trade occurs, or executes.

Let's say you place an online trade on Tuesday, March 15, and the order fills the same day. As easy as this sounds, your trade date is March 15 because it executed on this day.

The settlement date is going to be 3 business days after the trade for stocks and ETFs. In this example, the settlement date will be March 18.

Whether you buy stock or sell stock, you'll have to deal with the settlement period. So, it's good to know how it works. A settlement date is the day the trade must be settled. That is, the date by which a buyer must pay for the securities delivered by the seller. To recap the example listed above, the settlement date is three business days after the trade date. This is referred to as T + 3

Tip: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

Securities and Settlement Periods
Security Type Settlement Date
Stocks 3 market days after trade date
Exchange-Traded Funds (ETFs) 3 market days after trade date
Mutual Funds 1 market day after trade date
Options 1 market day after trade date

Important: Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for before it is sold. Your account may be restricted if you fail to comply with these rules.

When will my trade settle?

After a trade order executes, it takes 1 to 3 days to settle (depending on the trade type).

Securities and Settlement Periods
Security Type Settlement Date
Stocks 3 market days after trade date
Exchange-Traded Funds (ETFs) 3 market days after trade date
Mutual Funds 1 market day after trade date
Options 1 market day after trade date

You'll be able to withdraw funds from your ShareBuilder account, or use the funds to buy securities after the settlement date.

What is the difference between trade date and settlement date?

Tip: Bank-only holidays such as Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

What are settled funds?

These are funds available for investing or withdrawal. That's why it's good to know how the settlement date works, and how it can impact your investing strategies.

Let's say you use unsettled funds to purchase a new security and then turn around and sell this security before the sale settled. In that situation, we are required to treat the transaction as freeriding under Federal Reserve Board rules for cash accounts.

Tip: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

What is freeriding?

Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for in full before it is sold. A failure to comply with these rules is known as freeriding.

We'll try to break down what this all means without putting you to sleep with industry jargon:

  • When you sell a security, funds are not officially transferred between the buyer and seller until three business days following the sale of Stocks or ETFs and one business day for mutual funds or options. This time is known as the settlement period. (Still awake? Good.)
  • During the settlement period, we allow you to use these proceeds to fund the purchase of a new security.
  • If, however, you choose to sell the second security prior to the settlement date of the first security, you have then bought and sold using unsettled funds. This is considered a "credit" transaction and is prohibited by Regulation T of the Federal Reserve Board.
  • The Federal Reserve Board requires that we place a 90-day settled-funds-only freeze on every cash account that is in violation. Accounts with this restriction are unable to invest funds from stock sales until the sales settle.

We understand that this type of regulation is complex (and exciting). Learn more about Regulation T.

Identifying Potential Payment Problems:

One way to avoid freeriding is by looking at the trades you're thinking about placing the way we do when we monitor trades for freeriding.

  1. Have at least three market days passed since you purchased the stock? Your trade confirmation shows the settlement date.
  2. If you purchased a stock with the proceeds from a prior sale, verify that the settlement date for the original shares you sold has passed prior to selling it.

If you have not satisfied one of the two requirements listed above, you may simply deposit sufficient additional funds to cover the purchase of the shares that you intend to sell.

Tip: Bank-only holidays such as Columbus Day and Veterans Day are not considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

What is Regulation T?

Regulation T of the Federal Reserve Board (FRB) requires that stock purchased in a cash account must be paid for in full before it is sold. A failure to comply with these rules is known as freeriding.

The most common situations that fall under this category are:

  1. A recent deposit bounced and the stock purchased with that deposit was sold to cover the negative balance.
  2. Proceeds from one stock sale were used to fund the purchase of other shares, but the new shares were sold before the sale of the old shares settled.

We allow you to reinvest funds from recent stock sales. However, if you choose to sell the new shares before the settlement date of the prior sell order, we are required to treat the transaction as freeriding under Federal Reserve Board rules for cash accounts.

Identifying Potential Payment Problems:

One way to avoid freeriding is by looking at the trades you're considering to make the way we do when we monitor trades for freeriding.

  1. Have at least three days passed since you purchased the stock? Your trade confirmation shows the settlement date.
  2. If you purchased a stock with the proceeds from a prior sale, verify that the settlement date of the shares you sold has passed prior to selling it.

If you haven't satisfied one of the two requirements listed above, you may simply deposit additional funds to cover the purchase of the shares that you intend to sell.

This action is allowable in a cash account
Business Day 1 Business Day 2 Business Day 3 Business Day 4
Sell ABC BUY XYZ with the sale proceeds No action taken Funds from the sale of ABC are received, SELL XYZ

This action is considered freeriding (not permitted) in a cash account
Business Day 1 Business Day 2 Business Day 3 Business Day 4
Sell ABC BUY XYZ with the sale proceeds SELL XYZ Funds from the sale of ABC are received

Tip: Bank-only holidays such as Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

If you don't have additional funds to deposit, but choose to sell your security anyway, you'll have the unfortunate problem of being in violation of Federal Reserve Board regulations.

The Federal Reserve Board requires that we place a 90-day settled-funds-only freeze on every cash account that is in violation. Accounts with this restriction are unable to invest funds from stock sales until the sales settle.

This settled-funds-only freeze will not prevent you from investing newly deposited funds or selling any shares in your account.

What does the FRB have to do with securities accounts?
The Federal Reserve Board regulates the extension of credit to consumers. In the case of a cash securities account, the FRB sets forth the requirements for securities payments in section 220.08 of Regulation T: http://www.federalreserve.gov/regulations/default.htm.

Regulation T is based on the FRB's belief that a customer who sells securities before having the cash to pay for them is engaging in a credit transaction, essentially borrowing money to invest. This type of transaction is properly done in a margin account.

How do I determine how much cash I have available to invest?

Only funds in your cash balance that aren't tied into an open order or withdrawal request can be used for investing. Also, some of the funds may be subject to holding periods that will delay their availability.

To help you out, here is a list of possible fund designations that may appear in the 'Cash Available for Investing' section of the 'Balances' page.

  • Cash Balance – Total amount of funds showing in your ShareBuilder account
    • Open Orders – Funds being used for a pending buy order
    • Withdrawal Requests – Funds being used for a pending withdrawal request
    • Unsettled Trades – Appears if your account is restricted to settled funds

Tip: Bank-only holidays such as Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

Important: Buying securities on margin isn't appropriate for every investor. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

How do I determine how much I can withdraw from my ShareBuilder account?

It depends on a few factors. But, you can withdraw funds that aren't tied up in a pending order, have already settled, and aren't subject to any holding periods.

Here is a list of possible fund designations that may appear in the 'Funds Availability' section of the 'Withdraw Money' page:

  • Cash Balance – Total amount of funds showing in your ShareBuilder account.
    • Open Orders – Funds being used for a pending buy order
    • Other Funds Requests – Funds being used for a pending withdrawal request
    • Margin Loan Availability – Margin accounts can withdraw this amount to use outside of their account; this does not include the Cash Balance
  • Maximum Funds Available to Request – Total amount of funds available for new buy orders—these funds may be subject to holding periods
    • Unsettled Trades – Funds from the sale of stock not available for withdrawal from your ShareBuilder account until settlement date, 3 market days after the trade date (1 market day for option and mutual fund trades)
    • Uncollected Funds – Funds from recent deposits that are subject to holding periods
  • Funds Available to Request Today – Maximum amount of funds available for immediate withdraw from your ShareBuilder account.

Only funds that are in your cash balance can be withdrawn from your ShareBuilder account. If you own securities in your account, and wish to withdraw the value of those securities, you will first need to sell the individual securities with an online trade.

Also, holding periods may affect funds availability for withdrawals from your ShareBuilder account. Please refer to the table below:

Holding Periods
Funding Method Holding Period
Electronic Funds Deposits 5 business days
Check or Money Order 10 business days
Payroll Deposit No Waiting Period
Wire Transfer No Waiting Period
Proceeds from the sale of stock 3 market days

Tip: Bank-only holidays such as Columbus Day and Veterans Day aren't considered settlement days. To view a list of all market holidays, see our Holiday and Trading Calendar.

Important: Buying securities on margin isn't appropriate for every investor. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.