When I buy stocks in my brokerage account(non-margin), I heard that there is a settlement period of 2 -3 biz days after which the clearing house will deposit the stocks to my account. Same thing for selling stocks i.e it will take 3 days for the cash to arrive in my account.

But if this is true, how come I can buy a stock and sell it immediately? (Let us assume we are not violating the 4 round trips in 5 days SEC rule, after which we are warned to convert the account to a margin account with 25000 min deposit.)

  • Which country or exchange are you trading on? Jan 26, 2014 at 17:12
  • the pattern day trader rule only applies to margin accounts, not cash accounts.
    – CQM
    Jan 26, 2014 at 18:53

1 Answer 1


In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded.

FINRA has supplemented that regulation with an anti-"free rider" rule, Rule 4210(f)(9), which reads

No member shall permit a customer (other than a broker-dealer or a “designated account”) to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker-dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze.

It is only funds from uncleared sold equities that are prohibited from being used to purchase securities.

This means that an equity in one's account that is settled can be sold and can be purchased only with settled funds. Once the amount required to purchase is in excess of the amount of settled funds, no more purchases can be made, so an equity sold by an account with settled funds can be repurchased immediately with the settled funds so long as the settled funds can fund the purchase.


A closed position is not considered a "long" or "short" since it is an account with one loan of security and one asset of security and one cash loan and one cash liability with the excess or deficit equity equal to any profit or loss, respectively, thus unexposed to the market, only to the creditworthiness of the clearing & settling chain.

Only open positions are considered "longs" or "shorts", a "long" being a possession of a security, and a "short" being a liability, because they are exposed to the market.

Since unsettled funds are not considered "longs" or "shorts", they are not encumbered by previous trades, thus only the Reg T rules apply to new and current positions.

Cash vs Margin

A cash account cannot purchase with unsettled funds. A margin account can. This means that a margin account could theoretically do an infinite amount of trades using unsettled funds. A cash account's daily purchases are restricted to the amount of settled funds, so once those are exhausted, no more purchases can be made.

The opposite is true for cash accounts as well. Unsettled securities cannot be sold either.

In summation, unsettled assets can not be traded in a cash account.

  • 1
    Thanks. So for a cash account, settlement happens immediately, but for margin accounts, it takes t + 2 biz days? Can you elaborate a bit?
    – Victor123
    Jan 26, 2014 at 19:00

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