T+1 Settlement and Cash Accounts

Buy today, sell today

US stocks trade T+0: shares bought can be sold the same day. The actual settlement, where cash and shares change hands, completes on the next trading day.

From 2024: T+1 settlement

From May 28, 2024 the US settlement cycle shortened from T+2 to T+1: trade on Monday, settle on Tuesday, pushed back over weekends and holidays. Sale money can only be transferred out after settlement.

Good-faith violations in a cash account

In a cash account, buying a new stock with unsettled sale proceeds is fine; but selling that new stock before the money settles is a good-faith violation.

Key takeaways

• US shares bought can be sold the same day; since May 28, 2024 the settlement cycle has been shortened from T+2 to T+1.
• Sale proceeds can usually be used to buy other stocks before settlement, but can only be withdrawn on the settlement date.
• In a cash account, buying with money that hasn't settled yet and then selling the new stock before that money settles is a good faith violation; a few violations within 12 months get the account restricted.
• Keeping some settled cash in a cash account, or waiting until settlement before selling, avoids the problem.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. In the calendar, buy on Wednesday (November 25): on which day does it settle? Why not Thursday?
2. Switch to “Sell”: on which day can the sale money be transferred out?
3. In the cash-account simulator, choose “Money just received from selling A” and sell B on Monday: what happens? What about Tuesday?
4. Switch the money for B to “Settled cash”: is selling B on Monday still a violation?

Quiz and explanations

1. What's the US settlement cycle now?

Answer: T+1.Since May 28, 2024 US stocks settle T+1: settlement completes on the 1st trading day after the trade.

2. In a cash account: on Monday you sell A, use that money to buy B, then sell B on Monday too. What happens?

Answer: It's a good faith violation.The money from selling A only settles on Tuesday, so selling B on Monday means selling before you've really paid; that's a good faith violation.

3. In the same situation, what avoids the violation?

Answer: Sell B on Tuesday or later instead.Wait until the money from selling A settles (Tuesday) before selling B; the money for B is then fully paid and there's no problem.

Terms in this lesson

• cash account (Cash Account): An account that can only buy shares with your own money, with no borrowing or short selling. It isn't subject to the PDT rule, but sale money has to settle before it can be reused “cleanly”.
• good-faith violation (Good Faith Violation (GFV)): In a cash account, buying shares with unsettled sale proceeds and then selling the new shares before that money settles. After a few violations within 12 months, the account can only buy with settled cash.
• settlement (Settlement): The step after a trade where cash and shares formally change hands; different markets take different numbers of trading days (US stocks T+1, Hong Kong T+2).
• T+1: The first trading day after the trade date. In A-shares, “T+1” means shares bought today can only be sold on the next trading day; in US stocks, “T+1 settlement” means cash and shares change hands on the first trading day after the trade.
• T+0: Shares bought today can be sold the same day. Hong Kong, US, Japanese and Korean stocks all allow it; ordinary A-shares don't, only some ETFs and similar products do.