Trade Date

What Is the Trade Date?

The trade date is the month, day, and year that an order is executed in the market. It catalogs when an order to purchase, sell, or otherwise transact in a security is performed and is determined for all types of investment security transactions in the market.

Key Takeaways

  • A trade date refers to the month, day, and year that an order is executed in the market. 
  • If a trade is consummated after regular trading hours, it may be booked with a trade date on the following business day.
  • The settlement date marks the date and time of the legal transfer of securities effected between the buyer and the seller.
  • The lag time between the trade date and settlement date differs from one security to another.

Understanding the Trade Date

Most trades occur during regular market trading hours and are recorded with the day’s trade date. Trades occurring outside standard market hours may have alternative trade reporting. Trades executed after the market’s close are typically recorded with a trade date on the following day.

A trade date can apply to the purchase, sale, or transfer of any type of security, including bonds, equities, foreign exchange instruments, commodities, and futures. The exact timing of the trade influences the trade date of a transaction.

Trade Date vs. Settlement Date

The trade date is one of two important dates for transactions. The trade date records and initiates the transaction. After that, trade dates are followed by a settlement date, where the trade is settled, which occurs after some lag.

The settlement date is when the securities legally change hands. In defining the time between trade and settlement dates, common practice is to denote T + days lag (e.g. T+1, T+2, T+3), where 'T' refers to the trade date.

The amount of time that passes between the trade date and the settlement date differs depending on the trading instrument and is known as the settlement period.

Actual legal ownership is transferred on the settlement date, not the trade date.

Some financial instruments, such as certificates of deposit (CDs), have settlement dates that are the same as the trade date. Mutual funds may settle one day after the trade date.

In 2017, the Securities and Exchange Commission (SEC) enacted T+2 settlement for most securities. T+2 settlement pertains to stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.

Although rare, there are two ways in which settlements can fail. The first is called a long fail, where the buyer lacks adequate funds to pay for the shares purchased on the trade date. The second is called a short fail, which happens when the seller does not have the necessary securities available on the settlement date.

Example of a Trade Date

To better understand the trading process and the trade date, consider the following example. An investor buys 10 shares of stock from their brokerage trading platform on Tuesday, Aug. 2, 2022, during standard market trading hours. The investor’s purchase initiates the trade and is recorded with a trade date of Aug. 2, 2022. With the current settlement cycle being two days after the trade date, this trade would settle on Thursday, Aug. 4, 2022.

In February 2022, the United States Securities and Exchange Commission proposed a change to the settlement cycle for most broker-dealer transactions from two days to one day. If the change were to be adopted, compliance would be required by March 31, 2024. If this were adopted, the above trade example would then settle on Wednesday, Aug. 3, 2022.

What Is the Difference Between the Trade Date and the Settlement Date?

The trade date is the date on which a trade is executed; when the trader makes and acts on a trading decision. For example, the day a trader buys stock is the trade date. The settlement date is the date on which the stock is legally transferred between the buyer and the seller.

Do I Pay the Price on the Trade Date or the Settlement Date?

For a financial order, such as the purchase of shares, you pay the price on the trade date. The settlement date is when the shares are legally transferred to you, but you do not pay the price of the shares on the settlement date.

How Soon Can I Sell a Stock After I Buy It?

Technically, you can sell a stock as soon as you buy it; however, depending on the exchange, there are various rules around selling. For example, you may not be able to sell more than a specific number of times during a day or are limited to a certain monetary threshold depending on your account type. Before you make buy or sell decisions, ensure that you understand the trading rules of your account and the exchange you are trading on.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Press Release: SEC Adopts T+2 Settlement Cycle for Securities Transactions."

  2. U.S. Securities and Exchange Commission. "Shortening the Securities Transaction Settlement Cycle."

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