What is a Trade Date?
A trade date is the month, day and year that an order is executed in the market. The trade date is when an order to purchase, sell or otherwise acquire a security is performed. A trade date is determined for all types of investment security transactions in the market.
Understanding Trade Date
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. Most trades occur during 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.
Trade Date and Settlement Date
The trade date is one of two important dates involved in a transaction. The trade date records and initiates the transaction. The settlement date is the next step in the transaction. The settlement date usually differs from the trade date. The settlement date is the date in which the transfer between two parties is executed. It is worth noting that actual legal ownership is transferred on the settlement date, not 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. The settlement timeframe is noted as T+ the number of days to settlement. Some instruments, like 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 September 2017, the Securities and Exchange Commission 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.
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 a stock from their brokerage trading platform on Tuesday, December 5, 2019 during standard market trading hours. The investor’s purchase initiates the trade and receives a trade date of December 5, 2019. The processing time to settlement for stocks is two days so the buyer would officially receive the shares of stock in their trading account in T+2 which equates to a settlement date of Thursday, December 7, 2019.