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.