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What could go wrong? Do you always end up getting the funds eventually? How long can you be delayed from getting the funds? Is there any counterparty risk of the other party not paying you the funds you are expecting after selling some stock?

Edit / follow up: Let's say I sell stock in a transaction called TX1. When buying stocks with unsettled funds in a transaction called TX2, how concerned should I be about the possibility that the funds won't settle from TX1 and I will receive my shares back from TX1. Does this differ in a margin account versus a cash account? I'm aware of good faith violations, but here I'm specifically asking about the risk of TX1 not settling. What happens to TX2 in the case that TX1 doesn't settle? (Either in a margin account or a cash account).

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What could go wrong?

The person who says they want to buy the stock not getting enough money in time.

Do you always end up getting the funds eventually? How long can you be delayed from getting the funds?

Your questions assume that the other person immediately gets your shares, but you don't immediately get the money. That's not what happens.

https://www.schwab.com/resource-center/insights/content/stock-settlement-why-you-need-to-understand-t2-timeline

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

In the era before trading systems were fully computerized, if the prospective buyer can't come up with the cash within two days, the trade falls through, and you get your shares back.

But now, though, modern computerized brokers go to great length to ensure that buyers have enough cash (or margin) to pay for your shares, so trades never fall through.

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  • Your last two sentences contradict each other and are wrong. Buyers on margin do not pay for your shares. They must have at least 50% of the purchase price for the trade to execute and they borrow the balance from their broker. If they don't have 50% the trade doesn't occur. If it does occur and there's a subsequent margin maintenance problem with the counterparty, his broker liquidates his position in the open market. There's no scenario here where "the trade falls through and you get your shares back."
    – Bob Baerker
    Commented Dec 25, 2020 at 14:01
  • @BobBaerker in the past, the trade would have fallen through. But now -- as you say -- they don't fall through because -- like I said -- "brokers go to great length to ensure that buyers have enough cash (or margin) to pay for your shares".
    – RonJohn
    Commented Dec 25, 2020 at 15:33
  • If that's what you meant then you should edit your answer to accurately reflect what you are trying to say.
    – Bob Baerker
    Commented Dec 25, 2020 at 15:39
  • @BobBaerker done.
    – RonJohn
    Commented Dec 25, 2020 at 16:05
  • Thank you for the help. I just edited my original question to ask a new, related question. Not sure if it should have been its own question or not. Edit: Oh, nevermind. I think your new edit basically says TX1 not settling is basically impossible these days.
    – Kevin Wheeler
    Commented Dec 25, 2020 at 16:14
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When selling shares, etc. through a stock broker, do unsettled funds always settle?

In the US, an account holder with a cash account (your counterparty) must have 100% of the cost of the security to purchase it and the funds must be settled. A purchase made without sufficient funds is a riding violation and may lead to account restriction.

Per Reg T, a margin account (your counterparty) must have 50% of the cost of the security to buy it (leveraged ETFs have higher requirements). Your broker can impose a higher margin requirement. If the counterparty has a subsequent margin maintenance issue, that's between him and his broker.

In both cases, you will receive the proceeds from the sale of your stock in two business days (T+2). This addresses you question about selling your security.

Should I just not worry about it and go ahead and buy stock with unsettled funds?

That's a confusing question since your question's title is about selling your security. Buying stock with unsettled funds in a cash account is a violation. It's not a problem in a margin account because that is the idea of a margin account - you don't have to wait settlement to trade again.

I'd request that rather than repeated editing of your question that you ask additional questions in comments (or a new question) because changing your question can make previous answers appear inapplicable.

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  • My understanding is that you could buy stock in a transaction we'll call T2 with unsettled funds from a transaction T1 in a cash account, you just can't then sell those those stocks bought in T2 until the funds from the sale in T1 settle. Except you can, you just won't be able to make any other trades for 90 days if you get a violation.
    – Kevin Wheeler
    Commented Jan 5, 2021 at 19:23

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