T+1, T+2 & T+3 transaction settlement process is applicable in stock or security transactions. These short forms indicate the transaction settlement period. Therefore, you have to learn about the application of T+1, T+2 and T+3 transaction settlement process. Before entering main description, you should learn the basics of stock market.
Understanding T+1, T+2 and T+3
Abbreviation of “T” is transaction. The above short forms are related with transaction settlement process.
T+1 Details
T+1 indicates that if you buy a stock or security today, your stock or security will be salable tomorrow. That means, if you want to sell, you will sell your holding tomorrow.
For example, if a transaction occurs Sunday, it will be settled on Monday. Generally, settlement period depends on the categories of stock. A category stock may be settled in T+1 or T+2.
T+2 Details
T+2 means that if you buy a stock today, you can sell it day after tomorrow. That means you have to wait trading day and one more business day to sell your holding. For example, if you buy a stock Sunday, it will be saleable on Tuesday.
T+3 Details
T+3 means that you have to wait two more days except the trading day to sell your stock. If you buy a stock Sunday, this stock will be saleable on Wednesday.
Let’s see the example
Remember that weekly holidays will not be counted as business day. Simply, T+1 and T+2 are applicable for A, B and N category stock. On the contrary, T+3 is applicable for Z category stock.
Relationship among T+1, T+2 & T+3 and stock categories
In many countries, A, B, N and Z are the common categories of stock. Stock categories are determined on the basis of dividend declaration and AGM holding. “A” category stock gives 10% or more dividend and holds Annual General Meeting (AGM) each financial year.
T+1 or T+2 settlement period is applicable for “A” category stock.
“B” category stock gives less than 10% dividend and holds Annual General Meeting (AGM) each financial year.
T+1 or T+2 settlement period is applicable for “B” category stock.
“N” category stock is a new company. This company have just entered the stock market through IPO and hasn’t pass any financial year.
T+1 or T+2 settlement period is applicable for “N” category stock.
“Z” category stock similar to junk stock. “Z” category stock does not give any dividend. Moreover, “Z” category company has failed to hold AGM.
T+3 settlement period is applicable for “Z” category stock.
Note: settlement period may vary from countries to countries. It’s your duty to know the settlement period from your trading exchange.
For “Z” category stock, you should learn about mature and immature trading balance.
By Dhaka Stock Exchange’s rule, you can’t buy “Z” category stock with immature balance. If you violate this rule, your buy order will be suspended.
Immature balance
Suppose you sell a “Z” category stock today. With this intraday cash, you will not buy another Z’s stock today. Your intraday cash is count as immature balance. This immature cash will be mature in T+2. Hence, you should learn the basic rules and regulation from your trading exchange.
If you want to learn more about stock trading and investing and personal finance, you should read the All in One Section of “Financial Ask”.
In short
T+1, T+2 & T+2 are the transaction settlement period. There is a relationship between the categories of stock and transaction settlement process.
Founder of The Financial Ask
