Sunday, June 28th, 2015

What is the purpose of the settlement date in online stock trading?

If I buy 1000 of XYZ for $ 1000 in my account on Monday and sold the same amount on Monday (now with a total of $ 1100 in my account)? Why? I have to wait until Thursday to buy back to $ 1100 in my account? ? No duty? To be able to buy and sell and buy back every Monday? Is there any way around this system, but not limited to a? Add m? S money to the account?

Comments

5 Responses to “What is the purpose of the settlement date in online stock trading?”
  1. shamieya says:

    I believe its a federal trade commission regulation to deter fraud. They usually included that information in whatever paperwork you got when you registered. maybe contact the FTC for detailed info. I felt the same way, i thought i was going to day trade, then found out i had to wait until the first sale cleared. You can trade on margin if you don’t want to wait, but its a loan with interest, so it may not be worth it.

  2. Steve B says:

    The settlement date is the date that the trade either needs to be paid for (if you’re a buyer), or the securities delivered (if you’re a seller). It is 3 business days after the trade date for normal equities.

    The reason you can’t buy more stock until the trade settles is because the money to purchase those stocks is not in your account until the trade settles.

  3. Dean * says:

    I believe there is a waiver that you can get if you have over 25k in your account to qualify as a day trader.

  4. esskay33 says:

    Here is the history (in simple terms) behind settlement dates. Before everything was electronic, a stock was purchased by one person and sold by another. They two parties involved had 3 days to deliver the securities and $ required to finalize (or settle) the transaction. You have to remember that this used to be done by mail etc. and was much slower than today.

    The reason this rule is still in effect is as follows:

    Let use your example; you buy $1000 of XYZ from Mr. Smith on Monday and sell it on the same day (now owing the stock to the person who bought it, we’ll call him Mr Davis). Now, lets say that Mr Smith didn’t actually own the stock (there are still various reasons this could happen) and so you never actually receive it from Mr Smith, therefore Mr Davis never actually receives the stock from you and the entire chain of events (simnplified in this example) is nullified.

    How you can get around this: sign up for Margin-ability on your account. In simple terms Margin allows you to sell stocks short, borrow funds from your broker to buy more than you can afford etc. So, instead of having to wait until the original trade settles (between you and Mr Smith), you can, in effect, borrow money from your broker to buy another stock before the trade settles. Normally borrowing money from your broker will cause interest to be charged, but because you borrow to buy your new shares on Tuesday, you are not charged interest until that trade “clears” or is settled, and thus you are not charged until Friday (T+3) and your original sale (to Mr Davis) has cleared and can cover the borrowed money…no interest due.

    Hope this makes sense!

  5. BangkokBob says:

    Your broker is giving you the run around. You are probably using one of these trading systems to do your trades, not a legitimate stockbroker. If your original purchase was fully paid for, and then you sold it, there is no reason why you can’t use that money for another purchase.

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