Term: T+1 (T+2, T+3)
Type: Financial settlement notation
Used in: Stock trading, securities clearing, investment markets
Refers to: The time it takes to settle a trade after the transaction date
Definition
T+1 stands for “Trade Date plus One Day,” referring to the time required to settle a securities transaction. This means ownership of the security and payment must be finalized one business day after the trade is executed.
The “T” is the trade date, and the number indicates how many business days later settlement occurs. Historically, trades settled on T+3, then shifted to T+2, and as of May 2024 in the U.S., T+1 is now the standard.
Key Features
- T = Trade Date: The day the trade is made
- +1, +2, +3 = Settlement Days: Time until money and shares change hands
- Applies to: Stocks, ETFs, mutual funds, bonds
- U.S. Now Uses T+1: Effective May 28, 2024 (NYSE/Nasdaq)
- Faster Settlement = Less Risk
Common Use Cases
- Understanding when funds become available for reinvestment
- Avoiding violations like “free riding” in margin accounts
- Calculating dividend and record dates
- Managing trading risk and cash flow in brokerage accounts
Benefits or Advantages
- Reduces counterparty and market risk
- Speeds up access to funds and securities
- Improves market efficiency
- Aligns with global regulatory trends
Examples or Notable Applications
If you buy stock on Monday, with T+1, settlement occurs Tuesday. If you sell shares Tuesday, cash is typically available Wednesday. Before 2017, U.S. used T+3 — moving to T+2, then T+1 in 2024. Shorter settlement = less time for a trade to fail or be reversed.
External Links
This post is for informational purposes only and does not constitute investment advice or legal guidance.