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Stock Settlement: Why You Need to Understand the T+2 Timeline

Key Points
  • Stock settlement violations can occur when new trades are not properly covered by settled funds.

  • Although settlement violations generally occur in cash accounts, they can also occur in margin accounts, particularly when trading non-marginable securities.

  • We discuss the main types of settlement violations and how to avoid them.

Frequently asked questions


What is settlement?

Settlement marks the official transfer of securities to the buyer's account and cash to the seller's account.

When does settlement occur?

For most stock trades, settlement occurs two business days after the day the order executes. Another way to remember this is through the abbreviation T+2, or trade date plus two days. For example, if you were to execute an order on Monday, it would typically settle on Wednesday. For some products, such as mutual funds, settlement occurs on a different timeline.

What counts as settled funds?

  • Incoming cash (such as a check deposit or wire)
  • The available margin borrowing value in a margin account (doesn't apply to a cash account)
  • Settled sale proceeds of fully paid-for securities

How can I view settlement information on

You can view the settlement date for a particular transaction in your account History page, or you can see your account’s total available settled funds in your account Balances page.

To view History:

  1. Log into
  2. Select Accounts.
  3. Click History.
  4. Click on the Transactions tab.
  5. To view the Trade Transactions Details window, click the Trade Details link. (See below.)


Transaction Details screen on displays settlement date for a particular transaction.


To view Balances:

  • Log into
  • From the Accounts dropdown, select Balances.
  • Navigate to the right-hand side of the page to Funds Available.
  • Under To Trade, you’ll see the Settled Funds total. (See below.)
Current Account Balances screen on displays total available settled funds in your account.


What are the main types of settlement violations?

Stock settlement violations occur when new trades to buy are not properly covered by settled funds. Although settlement violations generally occur in cash accounts, they can also occur in margin accounts, particularly when trading non-marginable securities. 

The main violation types are good faith, freeriding and liquidation

Good faith violations occur when you attempt to use unsettled proceeds to settle a purchase.

  • The situation: 
    • Day zero (the trade date): Ms. Jones starts with 100 settled shares of XYZ stock, and sells them for $2,000. The proceeds from the sale will settle on day two (T+2); until then, they are “unsettled” proceeds.
    • Ms. Jones then invests $1,000 of the unsettled proceeds in UVW stock.
    • Day one (the day after trade date: T+1): Ms. Jones sells her UVW stock for $1,500, one day before the XYZ trade settles.
  • The violation:  Ms. Jones has created proceeds in her account, but they won't be settled until day two (T+2). Because Ms. Jones sells her UVW stock prior to the settlement of the XYZ proceeds used to buy it, the sale of UVW results in a good faith violation.
  • The consequence: (Although Schwab generally implements the following sequence of actions, it may at its discretion impose permanent restrictions or account closure.)
    • The first instance of a good faith violation in an account generally results in a notification, but no restriction.
    • The second through fourth combined violations in a rolling 12 month period will result in a 90-day settled-cash restriction, during which time trading is restricted to the amount of settled funds available. A one-time exception – i.e., once in the life of the account - can be used by the client to remove the restriction.
    • The fifth combined violation of any kind generally results in a permanent settled-cash restriction.

Freeriding violations occur when you buy a security in a cash account that lacks sufficient settled funds and then sell the same security before depositing funds to pay for its purchase. This violation can occur whether the purchase and sale occur on the same day or on different days. 

  • The situation: 
    • Day zero (the trade date): Mr. Smith starts the day with $100 of settled cash in his account, and buys $1,000 of XYZ stock. The remaining $900 needed to cover the trade is due by the settlement date (day two: T+2).
    • Day one (day after trade date: T+1): Mr. Smith sells his XYZ shares for $1,500, before fully paying for the security with settled funds.
  • The violation: Because Mr. Smith sells the stock before paying for its purchase, the sale results in a freeriding violation.
  • The consequence:  Industry regulations require the brokerage firm to freeze the account for 90 days, during which time trading is restricted to the amount of settled funds available. (At its discretion, Schwab may impose permanent restrictions or account closure.)
  • Schwab cannot waive this restriction. However, if funds are deposited within the payment period to cover the entire purchase – generally four business days after the trade date - the violation may be downgraded to a good faith violation.

Liquidation violations are based on trade dates rather than settlement dates. There are two types of liquidation violations:

  • A cash liquidation violation occurs when you sell a security and use the proceeds to cover the purchase of a different security you bought on a prior trade date. Although similar to a freeriding violation, the primary difference between a liquidation violation and a freeride violation is that you are selling a security other than the one you purchased and using its proceeds to cover the other trade.
  • A margin liquidation violation occurs when your margin account has both a Fed call and a regulatory maintenance call, and you sell securities in the account to cover the calls.
    • A Fed call represents the deposit amount needed to meet the Federal Reserve Board’s Regulation T requirement (Reg T) for trades in a margin account. According to Reg T, you may borrow up to 50% of the total purchase price of a margin security, and fund the remaining 50% with cash.
    • A maintenance call occurs when a brokerage account falls below the brokerage firm’s established minimum equity requirement. Schwab’s maintenance requirement for equity securities is generally 30% of current market value, though this amount may vary depending on the type of security. A regulatory maintenance call occurs when the account falls below the regulatory minimum requirement, which is 25% for equity securities.
  • The situation: 
    • Day zero (the trade date): Mr. Lee starts with settled shares of XYZ stock and $100 in settled cash, and buys UVW stock for $1,000. The remaining $900 in settled funds needed to fully pay for the UVW purchase is due by the settlement date, which is day two (T+2).
    • Day two (T+2): rather than deposit cash into his account, Mr. Lee places an order to sell his XYZ stock.
  • The violation: Mr. Lee needs to provide settled cash by the settlement date, but instead he initiates a sell order on the settlement date. Because Mr. Lee elected to sell securities on a subsequent day rather than bringing in funds to meet the trade obligation, he incurs a liquidation violation. There would be no violation had Mr. Lee sold enough settled, fully-paid-for shares on the same trade date as the buy of UVW.
  • The consequence:  (Although Schwab generally implements the following sequence of actions, it may at its discretion impose permanent restrictions or account closure.)
    • The first liquidation violation in an account generally results in a notification, but no restriction.
    • The second through fourth combined non-freeride violations in a rolling 12 month period will result in a 90-day settled-cash restriction, during which time trading is limited to the amount of settled funds available. A one-time exception – i.e., once in the life of the account - can be used by the client to the restriction.
    • The fifth violation of any kind will generally result in a permanent settled-cash restriction. 

If you do not make payment on a purchase of stock or deliver shares for a sale of stock within the designated time frame, you be notified to take action.

If you don’t take action upon notification, industry regulations require that Schwab either request an extension, buy back, or sell out the position, as well as mark your account with a freeriding violation. Your account may also be placed on a 90-day settled-cash restriction, or incur more severe penalties, including account closure or removal of electronic access. At Schwab’s discretion, a one-time exception (i.e., once in the life of the account) may be available to the client to remove the restriction.

Schwab does not grant extensions of time for trades in retirement accounts (IRA’s, SEP’s Keogh’s, etc.), or accounts with an existing trading restriction. There are different practices for extensions on purchases and sales. You can contact a Schwab trading specialist at 800-435-9050 for more information about extensions.

What are some common situations that can lead to settlement violations?

I accidentally placed the trade in the wrong account. 
It can happen to the most careful of investors. You think you're placing a trade in your margin account, only to find you've accidentally placed it in your IRA. If you place a trade in the wrong account, contact a Schwab trading specialist immediately at 
. Closing out the position yourself may cause a violation. In many cases, Schwab can request a cancel and rebill to move the trade to the intended account. 

I traded a non-marginable security in my margin account. 
If you buy a security that's not marginable (then settled funds are required for full payment. Consequently, a settlement violation can occur in a margin account if you buy and then sell a non-marginable security before settled funds have covered the purchase. The order verification screen will alert you if a stock is not marginable. If you're not confident that you can commit to holding a non-marginable security for at least three trading days, consider limiting your purchase to settled funds only. 

I placed a day trade in my cash account. 
When a stock trade is completed in a cash account, the funds will not settle for two full trading days. Since a trade held less than two days in a cash account requires settled funds to avoid a good faith violation, it may become necessary to wait at least two days between trades so that the day trades or short-term trades may be executed using settled funds only. Limiting very short-term trades to settled funds will help reduce the risk of violating settlement rules. 

A bracket or alert fired in my cash account during the settlement period. 
When a bracket or alert is attached to a security you bought with unsettled funds in a cash account, there's a possibility that the exit trigger (e.g., sell stop, trailing stop, profit exit, etc.) will fire, closing the position and causing a settlement violation. If you need immediate protection on the position via an alert or bracket, consider using settled funds for the purchase, in case the exit is triggered during the settlement period. 

Alternatively, you could delay activating the alert until the first day the position can be sold without incurring a violation - either the settlement day for the purchase or the settlement day for the funds used to make the purchase. If you decide to simultaneously place the purchase with unsettled funds and immediately attach a bracket or alert, consider giving an additional cushion to the exit parameter(s) to lower the risk of execution within the settlement period. You can always update your exit parameters when the cushion is no longer necessary. 

What You Can Do Next

  • Watch Schwab Live Daily to learn about everything from basic stock selection to advanced trading strategies.
  • Call 877-807-9240 to speak with a Schwab trading specialist.
  • Ready to bring your trading to Schwab? Get started today.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

When accepting orders without sufficient settled funds or securities already on deposit, federal securities regulations require that Schwab monitor accounts for compliance with two conditions:

(1) Clients promptly make full cash payment of settled funds or deliver previously owned securities into the account within the payment period;


(2) Clients do not sell the securities purchased until full payment of settled funds has been made.

Schwab is required to restrict clients' ability to extend payment beyond the trade date for 90 calendar days in any case where both of these conditions are not met (freeriding). If clients make a practice of delaying payment (extensions), selling securities before settled funds are delivered (good-faith violation), or of satisfying purchase obligations by selling other securities after the trade date (liquidation violation), we may require that new trades be made only with settled funds or securities already on deposit.

When considering a margin loan, you should determine how the use of margin fits your own investment philosophy. Because of the risks involved, it is important that you fully understand the rules and requirements involved in trading securities on margin. Margin trading increases your level of market risk. Your downside is not limited to the collateral value in your margin account. Schwab may initiate the sale of any securities in your account, without contacting you, to meet a margin call. Schwab may increase its “house” maintenance margin requirements at any time and is not required to provide you with advance written notice. You are not entitled to an extension of time on a margin call. Please refer to your account agreement and the Margin Risk Disclosure Statement for more details.

The account detail tool is not the official record of your account. Your account statements and confirmations serve as your official records.
Stock symbols and price data shown here are strictly for illustrative purposes and should not be construed as a recommendation or an offer to sell or a solicitation of an offer to buy any securities.


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