What do T+1 and T+2 settlement mean?

If you’ve been investing, you’ve undoubtedly come across the terms T+1 and T+2 trading and settlement. 

Commonly used across markets, these terms refer to how long it takes for investors to take ownership of their shares. Let’s explain.

What is T+1 and T+2 trading and settlement?

Every time you buy or sell a share or an ETF on the stock market, a transaction takes place. Put simply, the market is matching you with someone who either wants to buy your shares or sell you theirs.

While that transaction (T) happens on the day your order is filled, it takes time to actually complete the trade and transfer share ownership between the buyer and the seller.

The standard on the ASX is two days, while Wall Street has recently changed to have trades settled in just one day. T+2 and T+1 simply refer to the number of days it takes for share ownership to be successfully transferred.

Why is settlement delayed? 

Due to the legwork involved and the limitations of technology, it has always taken time for share transactions to be processed. 

Thankfully this has been continually shortened over time, with the ASX moving from T+3 settlement to T+2 settlement in 2016. Similarly, on 28 May 2024, the SEC changed Wall Street's settlement period from T+2 to T+1.

As trading platforms and settlement systems have continuously evolved, so too has this delay been improved.

What does T+1 or T+2 settlement mean for me?

Whether you trade with Superhero or another broker, you as an investor can reasonably expect your trades to be fully processed (or settled) within the standard that the stock exchanges have set. As mentioned above, this is one day (T+1) for Wall Street exchanges and two days (T+2) for the ASX.

While you receive (or lose) the benefits of owning the stock once your buy (or sell) order is completed, you officially own (or have sold) the stock once settlement is complete. Do note that you’ll see the stocks in your Superhero portfolio once your buy trade completes, and vice versa, even before settlement.

Why does that matter? Well if an investment pays a dividend or distribution, your buy order will need to have been fulfilled before the ex-dividend date for you to be eligible for the dividend. If your buy order is fulfilled before the ex-dividend date, you’ll be entitled to the dividend even before the order is settled. 

How about the other side of the transaction? Well with the ASX’s T+2 trading for example, if you’ve sold shares you can expect the cash to hit your account two business days after the sale. As such, if your sell trade is fulfilled before the ex-dividend date, you will no longer be entitled to the stock’s dividend. 

If you had sold ASX shares on a Tuesday for example, you’d have received the funds by that Thursday. If you sold on a Friday, you’d have received the funds by the following Tuesday as the markets are closed over the weekends.

Trade settlement period with Superhero

Superhero’s trade settlement period follows what the exchanges mandate. 

However, Superhero also allows for our customers to trade with unsettled funds. 

This means that as a Superhero customer, you are able to automatically reinvest any funds from a fulfilled sell trade, even before that trade is settled by the exchange.

However, you will need to wait for settlement before doing an FX transfer or a withdrawal.

Invest in Aussie and U.S. markets for $2 brokerage with Superhero.

$2 brokerage for trades up to $20k in the relevant currency. T&Cs apply. Brokerage rates differ for Superhero Super.