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What are unsettled funds?
When you buy or sell securities, the funds and securities enter a settlement period to legally transfer ownership from the seller to the buyer. The funds used to purchase a security are immediately debited from the account. However, proceeds from the sale of a security aren’t credited to the account until those funds have ‘settled’.
How about the settlement time?
Settlement times can range from one to three business days, depending on the type of security. However, most securities have a T+2 settlement (trade date + two business days). This includes stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.
Can I trade with unsettled funds in Alpaca?
Yes – all of our user’s accounts are set up as margin accounts or limited-margin accounts (less than $2,000 in equity). Regardless of your account type, we cover the float between the time equities are purchased and settled. There are no costs associated with this and you don’t need to wait for trades to settle before using the proceeds to buy more equities. However, there are some transactions in which unsettled funds cannot be used. As an example, unsettled funds cannot be used to purchase cryptocurrency, nor can they be withdrawn from an account.
Trading on margin involves risk. You can actually lose more money than you deposit in a margin account. A decline in the value of the securities you purchase on margin may require you to provide additional funds to Alpaca Securities LLC in order to avoid the forced liquidation of those securities or other securities in your account. Individual securities may also require a higher margin maintenance. For more information, please read the Alpaca Margin Disclosure document here.
This article is solely for informational purposes only. Alpaca does not recommend any specific investments or investment strategies. Investments in securities involve the risk of losses and past performance does not guarantee future results. Before investing you should carefully consider your investment objectives, time horizon, and overall risk tolerance as well as the information stated in the product offering prospectuses.
Crystal Xue
Crystal Xue is a Content Marketing Manager at Alpaca. She's passionate about financial literacy and creating content that helps investors navigate financial concepts and products.
As an enthusiast deeply immersed in the world of investing, I bring a wealth of knowledge to the table. I've actively engaged with various investment instruments, dissected market dynamics, and kept a keen eye on the intricacies of financial transactions. My understanding extends beyond the surface level, allowing me to provide comprehensive insights into the complexities of investing.
Now, let's delve into the article by Crystal Xue, published on February 2, 2022, titled "What are unsettled funds?" The piece explores a crucial aspect of securities trading—settled and unsettled funds. Crystal Xue, a Content Marketing Manager at Alpaca, aims to elucidate the concept for investors, emphasizing the importance of understanding the settlement period when buying or selling securities.
The article begins by defining unsettled funds and explaining the legal process of transferring ownership from the seller to the buyer during a settlement period. It highlights that when purchasing a security, funds are immediately debited, but the proceeds from selling a security are credited only after the funds have settled.
The settlement time is discussed next, with the article noting that it can range from one to three business days, depending on the type of security. A common settlement period is T+2, representing the trade date plus two business days. This timeframe applies to various securities, including stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships.
A critical question addressed in the article is whether one can trade with unsettled funds on the Alpaca platform. The answer is affirmative, as all user accounts on Alpaca are set up as margin accounts or limited-margin accounts (less than $2,000 in equity). Alpaca covers the float between the time equities are purchased and settled, allowing users to trade without waiting for settlement. However, the article mentions certain restrictions, such as unsettled funds not being usable for purchasing cryptocurrency and their inability to be withdrawn from an account.
The article concludes with a disclaimer on the risks associated with trading on margin, emphasizing the potential for losing more money than deposited. It encourages readers to consider their investment objectives, time horizon, and risk tolerance before engaging in securities trading.
Crystal Xue's role as a Content Marketing Manager at Alpaca adds credibility to the information presented, underscoring her passion for financial literacy and helping investors navigate complex financial concepts.
In summary, the article provides a comprehensive overview of unsettled funds, settlement times, and the flexibility offered by Alpaca in trading with unsettled funds. It serves as a valuable resource for investors seeking a deeper understanding of these fundamental concepts in the realm of securities trading.
