What Is the Trade Date?

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

Trade dates are followed by a settlement date, 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.

Key Takeaways

  • The trade date is the precise day when an order is executed.
  • 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 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 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.

Trade Date vs. 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 on 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.

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 necessarily 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 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 for settlement of most listed 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.