In finance, settlement is the final step in the lifecycle of a transaction (trade).
đĄ Example
If you purchase a share of Tesla worth $200, that transaction is not final until settlement. The settlement process involves your $200 reaching the person who sold you your Tesla share and the Tesla share reaching you. This process finishes on a settlement date, which is usually two business days (T+2) after the trade is completed.
Until the settlement date, you still own $200, and the Tesla shares are not legally yours. However, that doesnât have much of an impact on you since the price you initiated the trade is legally binding and canât be changed. So if Teslaâs price increases from $200 to $250 in this two-day period, youâd still make a profit of $50.
Settled shares
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Shares are usually settled two business days after the trade.Â
For example, If youâve 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
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Similarly to the concept of settled shares, if youâve 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 âunsettled cashâ. Once the trade settles, those $200 will become âsettled cashâ.
If youâve enabled interest on cash, the amount of QMMFs you receive is based on your settled cash balance, not on your unsettled cash balance. Thatâs why there will usually be a difference between your free cash and the amount held in QMMFs.