The role of your settlement fund

Points to know

• You should consider keeping some money in your settlement fund so you're ready to trade.
• You can use your settlement fund to buy mutual funds and ETFs (exchange-traded funds) from Vanguard and other companies, as well as stocks, CDs (certificates of deposit), and bonds.

How to use your settlement fund

When you buy or sell stocks, and other securities, your transactions go through a broker, like Vanguard Brokerage. Money to pay for your purchases is taken from your settlement fund and proceeds from your sales are received in your settlement fund.
 

When you buy

Plan ahead. While you're not required to have a balance in your settlement fund at all times, keeping some money in the settlement fund has these advantages:

• You're more likely to have money to pay for purchases on the settlement date, when your account will be debited for the amount you owe.
• You'll reduce the risk of your trades being rejected, because you'll have money available when you're interested in placing a trade.
• You'll likely avoid restrictions being placed on your account as a result of committing a trading violation.

See how you can avoid trading violations & penalties
 

When you sell

Proceeds from the sale of securities transfer to your settlement fund.

How your settlement fund works

Now that you understand how to use your settlement fund, let's break it down a little further:

• When you buy securities, you're paying for them with money in your settlement fund.
• When you sell securities, the proceeds from the sale go directly into your settlement fund on the settlement date.

But what if you recently added money to your settlement fund by bank transfer or check?

In this case, the money may not be immediately available to pay for brokerage transactions. That's because funds received by electronic bank transfer or check are subject to a 7-calendar-day hold.

So it's wise to check your funds available to trade before you transact.