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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39157
Experience:  Retired (mostly)
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I understand that when I sell a stock or ETF there is a

Customer Question

I understand that when I sell a stock or ETF there is a setlement time of 3 days, is this a maximun or a mandatory 3 days and if mandatory how can a trader trade daily?
Submitted: 2 years ago.
Category: Business Law
Expert:  socrateaser replied 2 years ago.


It's actually three trading days (commonly termed, "T+3"). For example, if you buy 1,000 shares of INTC on Thursday, and the market is open on the following Monday, then the trade must settle no later than Monday, which is actually four calendar days from the date of the purchase transaction. And, if Monday is a market holiday, then the trade would settle on Tuesday, which is actually five calendar days from the date of the purchase transaction.

Note that the rule requires that the trade settle in a maximum of three days. The trade could settle earlier, however, all of the U.S. national exchanges and brokerage frims adhere to T+3 as if it were mandatory, rather than a maximum.

Concerning how day and swing traders can trade when their previous buy or short sale has not settled, these traders have margin accounts, whereby the brokerage will loan the value of the unsettled trades to trader during the settlement period, so that there is always sufficient funds to close out the prior trade.Typically, there is no interest charge on this short term loans, because the brokerage is earning a commission on every share traded -- so there is a large incentive to permit the trader to trade as much and as many times as possible each day.

I have personally transacted thousands of shares per day, for months a a time, and I have never been short of funds or charged margin interest. So, it's really a pretty common practice among those who daytrade for a living (or for sport). However, to be sure, it is very difficult as a profession, especially in the wake of the high-frequency trading firms that use computers and algorithms to try to beat the spread in every transaction. Daytrading for individual "manual" traders has become practically impossible. It's like "John Henry and the Steam Engine." Humans are simply not fast enough to make money at the real short term game.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer -- otherwise, I receive nothing for my efforts in your behalf.

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