What is a settlement period?

The settlement period is the time between the transaction time and the time when the conditions of this transaction are met. In financial transactions, this applies to the amount of time required to be offered for sellers and security to be transferred to the buyer. Depending on the security sold, the amount of time may vary during the settlement period. The settlement period is represented in terms of T on the transaction date, plus the number of days such as T+3 for the three -day period for the settlement of the stock transaction in the United States. Although the three -day period still exists nominally, it is common for traders to buy and sell the same shares for a shorter period of time. Practice known as daily trading, purchase and sale of shares on the same day. This is representation -shaped as T+0, although this practice is excluded in some countries due to the volatile effect of which it has on the stock market.

While the standard settlement time of the stock transaction is T+3, other transactions have a different amount of time. For exampleIn the United States, mutual funds must be settled within one day or T+1. Forex transactions with American cash register are performed for 2 days or T+2.

Some periods of settlement can be extended for a much longer period of time, which brings greater flexibility in transactions. In the real estate industry, it is not uncommon for the settlement period to be extended for weeks and even months. The conditions of the settlement period are usually developed before the transaction and may be dependent on a number of variables, such as the organization of the buyer's financing and how long it will take for the selling party to move from the property.

In any exchange, the risk of settlement should be considered. This applies to the risk that one of the two parties involved in transactions to meet their terms of agreement leaves the other side so that it can suffer significant losses. As a result, many countries have taken a longer period of settlement or allowLO The expansion of a predetermined settlement period, which is a practice known as extended settlements to try to eliminate the risk that such failure takes place in any type of transaction.