Trade Date

What Is the Trade Date?

The trade date is the month, day, and year that an order is executed in the market. It catalogs when an order to purchase, sell, or otherwise transact in a security is performed and is determined for a wide range of investment security transactions in the market.

Understanding the Trade Date

Most trades happen during ordinary market trading hours and are recorded with the day's trade date. Trades happening outside standard market hours might have alternative trade reporting. Trades executed after the market's close are typically recorded with a trade date on the next day.

A trade date can apply to the purchase, sale, or transfer of a security, including bonds, equities, foreign exchange instruments, commodities, and futures. The exact timing of the trade impacts the trade date of a transaction.

Trade dates are trailed by a settlement date, which happens after some lag. The settlement date is the point at which the securities legally change hands. In characterizing the time between trade and settlement dates, common practice is to denote T + days lag (for example T+1, T+2, T+3), where 'T' alludes to the trade date.

Actual legal ownership is transferred on the settlement date, not the trade date.

Trade Date Vs. Settlement Date

The trade date is one of two important dates for transactions. The trade date records and initiates the transaction. After that, the trade must be settled. The settlement date, the date on which the transfer between two parties is executed, normally contrasts from the trade date.

The amount of time that elapses between the trade date and the settlement date varies relying upon the trading instrument and is known as the settlement period. The settlement timeframe is noted as T+ the number of days to settlement.

A few financial instruments, for example, certificates of deposit (CDs), have settlement dates that are equivalent to the trade date. Mutual funds may settle one day after the trade date.

In 2017, the Securities and Exchange Commission (SEC) enacted T+2 settlement for most securities. T+2 settlement pertains to stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.

Although rare, there are two manners by which settlements can fail. The first is called a long fail, where the buyer needs adequate funds to pay for the shares purchased on the trade date. The second is called a short fail, which happens when the seller doesn't have the essential securities accessible on the settlement date.

Illustration of a Trade Date

To better understand the trading system and the trade date, think about the accompanying model. An investor purchases 10 shares of stock from their brokerage trading platform on Tuesday, December 5, 2019, during standard market trading hours. The investor's purchase initiates the trade and is recorded with a trade date of December 5, 2019.

The processing time for settlement of most listed stocks is two days, so the buyer would formally receive the shares of stock in their trading account in T+2, which equates to a settlement date of Thursday, December 7, 2019.

Highlights

• In the event that a trade is consummated after normal trading hours, it might be reserved with a trade date on the accompanying business day.
• The lag time between the trade date and settlement date varies starting with one security then onto the next.
• The settlement date denotes the date and time of the legal transfer of securities effected between the buyer and the seller.
• A trade date alludes to the month, day, and year that an order is executed in the market.