US stocks now settle T+1: the money and shares in a trade are only fully exchanged on the business day after it executes. In a cash account at a US broker, the proceeds of a sale can go into another stock the same day; sell that new stock before the original sale settles and it becomes freeriding, and the broker may freeze the account for 90 days.
Here is how to count the settlement date: sell on Monday, and the trade settles on Tuesday. A stock bought on Monday with the sale proceeds can't be sold before Tuesday unless you put extra money into the account. If the account does get frozen, you can still buy, but every purchase has to be paid for in full on the trade date.
US stocks have settled T+1, one business day after the trade, since May 28, 2024
The trade date is the day a buy or sell order executes; the settlement date is the day the trade is finalized and the money and securities must be delivered. The gap between the two is the settlement cycle. The settlement cycle explainer from FINRA (the Financial Industry Regulatory Authority) gives the current standard as one business day after the trade date, known as T+1.
On February 15, 2023, the SEC (the US Securities and Exchange Commission) adopted amendments shortening the standard settlement cycle for most broker-dealer transactions from two business days after the trade to one, with a compliance date of May 28, 2024; covered trades executed on or after that day follow the new cycle. The SEC's Office of Investor Education wrote a T+1 bulletin for the switch, which compares the two: sell ABC stock on a Monday, and under the old cycle in use since 2017 it settles on Wednesday, under the new one on Tuesday. The bulletin lists stocks and ETFs among the securities covered.
The deadline comes from SEC Rule 15c6-1, which binds broker-dealers required to register in the US: for the contracts they enter into to buy or sell securities, payment of funds and delivery of securities must happen no later than the first business day after the contract date. The rule also lists some securities and contracts it doesn't cover; where the parties expressly agree otherwise at the time of the transaction, the deadline doesn't apply; and for firm-commitment offerings priced after 4:30 p.m. Eastern time, the deadline is the second business day. "Broker" in the rest of this piece means this kind of broker-dealer. If you buy US stocks through a broker, ask the broker you opened your account with whether your account falls under this rule.
Can money from selling a US stock in a cash account buy something else the same day?
In a cash account, securities you buy must be paid for in full; you can't borrow from the broker to pay, since buying on borrowed money is margin trading. The rule here is the Federal Reserve's Regulation T (12 CFR 220.8), which lets a broker buy securities for a cash account customer in two situations: the account holds sufficient funds, or the broker accepts in good faith the customer's agreement to promptly make full cash payment before selling the security, with no plan to sell it before paying.
The SEC's Office of Investor Education also has a bulletin on cash accounts, Trading in Cash Accounts, which walks through four buy-and-sell sequences using $10,000 and two stocks, ABC and XYZ.
| What you did | Allowed? | Why |
|---|---|---|
| Your account holds only $10,000 in cash. On Monday you buy ABC with it and sell it the same day | Allowed | ABC was bought with cash already in the account, and fully paid stock can be sold at any time |
| Your account holds $10,000 of fully paid, settled ABC and no cash or other securities. You sell it all on Monday and buy $10,000 of XYZ on Friday | Allowed | The ABC sale proceeds settled on Tuesday, so the account had sufficient funds for the Friday purchase |
| Same holdings. On Monday you sell all your ABC and buy $10,000 of XYZ the same day, then sell XYZ on Friday | Allowed | You can buy XYZ with the ABC proceeds as long as you don't sell XYZ before the ABC sale settles (Tuesday); by Friday XYZ is paid for |
| Same holdings. On Monday you sell all your ABC, buy $10,000 of XYZ the same day, and sell all the XYZ on Monday afternoon without adding money to the account | Not allowed: this is freeriding | XYZ was paid for with a sale that hadn't settled; unless you pay its purchase price separately, you can't sell it before Tuesday |
In the last three cases, selling ABC is never the problem, because fully paid, settled securities in a cash account can always be sold. What separates allowed from not allowed is the second sale: whether XYZ had been paid for at the moment you sold it.
So if I wanted to buy and sell on the same day, I'd buy only with cash that has already settled in the account. Selling one stock and switching into another that day is fine; I'd treat the new one as a position I can't touch until that sale settles.
Selling before you've paid is freeriding, and the account may be frozen for 90 days
In a cash account, securities you buy must be paid for before you sell them. Buying and then selling without paying in between is freeriding (also written free-riding), which Regulation T doesn't allow. As the cash account bulletin puts it, if you do this your broker may have to freeze your account for 90 days; during the freeze you can still buy securities in the cash account, but each purchase must be paid for in full on the trade date.
The bulletin represents the views of the Office's staff and states that it is not a rule. The binding text is in Regulation T's cash account provision: if a nonexempted security in the account is sold before the customer pays for it in full, or is delivered to another broker-dealer, the privilege of delaying payment beyond the trade date is withdrawn for 90 calendar days, counted from the date of sale.
There is no freeze in either of these cases: full payment is received within the payment period, or the check or draft used to pay has cleared, and the sale proceeds haven't been withdrawn before then; or the security bought is delivered to another broker-dealer for deposit in a cash account that holds sufficient funds to pay for it. The payment period is the number of business days in the standard settlement cycle plus two business days, counted from the day of purchase. To avoid a freeze, the bulletin's advice is to pay for the stock in full no later than its settlement date, with money that doesn't come from selling that stock. The provision also leaves a route to ask for the freeze to be waived; the application is made by the broker to the body that examines it.
FINRA's Frequent Intraday Trading page describes free-riding as buying and selling the same security in a cash account without paying for it, which violates Regulation T and can lead to severe account restrictions. The page also lists something called a good faith violation: buying a security with cash from a trade that hasn't settled, then selling the security before those funds settle. To day trade in a cash account, you need to pay for purchases in full with settled funds, and if you trade often, keep a close eye on the cash available for buying in your account so you don't break the rules without meaning to. Day trading on margin falls under the intraday margin requirements.
If your broker sends you a violation or restriction notice, check in this order: which sale the notice is about; which earlier sale freed up the money you used to buy the stock you just sold; and on what day that earlier sale settled, and whether the sale in the notice came before that day.
When can you withdraw sale proceeds, and when must money for a purchase arrive?
With the shorter settlement cycle, an ordinary investor who sells a stock on Monday gets the money on Tuesday; that comes from the SEC Chair's statement ahead of the T+1 switch. When the proceeds can move from your brokerage account to your bank depends on your broker's withdrawal rules. If you've already sold a stock you hadn't paid for, leave the proceeds where they are and pay for the purchase with other money: the bulletin's deadline is the purchase's settlement date, and the payment period in the regulation ends two business days after that. If the proceeds are withdrawn before you pay, the case in the regulation where paying in full means no freeze no longer applies.
On the buying side, FINRA's settlement cycle explainer for investors says the broker must receive your payment no later than one business day after the trade, and many brokers require the money to be in your cash account before you place the order. Delivering securities when you sell runs on the same deadline: if you hold paper stock certificates, you have to get them to your broker in time. If your shares are held at the broker, the T+1 bulletin says the broker handles delivery for you.
If you use a margin account, the bulletin has one more reminder: T+1 may affect some terms of your margin agreement, so ask your broker how it affects your account.
Settlement dates and payment deadlines in more detail
When does a US stock sold on a Friday settle?
T+1 counts business days, and Saturdays and Sundays don't count, so a sale on a Friday usually settles the following Monday. A holiday in between pushes the settlement date back further; the exact day is the settlement date your broker shows.
Does starting an ACH transfer count as paying for a US stock purchase?
Starting an ACH (Automated Clearing House) transfer doesn't meet the payment requirement by itself; the money has to be deposited in the broker's bank account. FINRA's settlement cycle explainer also notes that if you plan to pay for a purchase by ACH, you should start the transfer on the trade date to make sure the funds arrive by the settlement date.
What happens if you don't pay for a cash account purchase on time?
Regulation T requires the broker to promptly cancel or otherwise liquidate a transaction the customer hasn't paid for in full within the required time, either the whole transaction or the unpaid part; where the shortfall is $1,000 or less, the broker may choose to disregard it. A cancellation that isn't made to correct an error counts as a sale under the regulation, and it also triggers the provision withdrawing the delayed payment privilege for 90 calendar days, which is the 90-day freeze described above.