T+1 Settlement

What is T+1 Settlement?

T+1 means "trade date plus one business day." When you buy or sell a stock, the transaction does not fully complete (settle) until the next business day. On the trade date (T), the trade executes. On T+1, the shares and cash officially change hands.

Why it matters

• Cash accounts: if you sell a stock on Monday, the cash settles on Tuesday. If you try to use that unsettled cash to buy another stock and then sell it before the original cash settles, you may trigger a good faith violation. See Good Faith Violation
• Margin accounts: settlement matters less day-to-day because your broker extends credit against unsettled funds. This is one reason active traders use margin accounts
• Withdrawals: you cannot withdraw cash from a sale until it settles

History

Settlement used to be T+5 (five business days), then shortened to T+3, then T+2 in 2017, and finally T+1 in May 2024. Each reduction was driven by technology making faster settlement possible and reducing counterparty risk.

T+1 settlement is one of the main reasons many active traders use margin accounts instead of cash accounts. With margin, your broker lets you trade with unsettled funds so you do not have to wait a day between trades.