In finance, settlement is the final step in the lifecycle of a transaction (trade).
For example, if you purchase a share of Tesla worth $200, that transaction’s not final until settlement. The settlement process involves your $200 reaching the person that sold you your Tesla share and the Tesla share reaching you. This process finishes on settlement date, which is usually two business days (T+2) after the trade was completed.
In this example, until settlement date, you still own $200 and the Tesla shares are not legally yours. However, that doesn’t have much of an impact on you since the price you initiated the trade is legally binding and can’t be changed. So if Tesla’s price increases from $200 to $250 in this two day period, you’d still make a profit of $50.
Settled shares
Shares are usually settled two business days after the trade.
For example, If you’ve enabled share lending, your shares need to be settled before they can be lent. If you purchase a share today, it can only be lent two business days after the day of the trade. This is why the share lending dashboard is based on the state of your portfolio 2 trading days ago.
Settled cash
Similarly to the concept of settled shares, if you’ve just sold $200 worth of Tesla shares, it will take two trade days for that transaction to settle. Until then, if you have no other cash in your account, those $200 are referred to as ‘unsettled cash’. Once the trade settles, those $200 will become ‘settled cash’.
If you’ve enabled interest on cash, the amount of QMMFs you receive is based on your settled cash balance, not on your unsettled cash balance. That’s why there will usually be a difference between your free cash and the amount held in QMMFs.