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What is a Trade Date?
Malcolm Tatum
Malcolm Tatum
Also known as a trading date or transaction date, the trade date is the date in which an investment transaction is initiated. On this date, an investor authorizes a broker to begin the process of buying or selling a specific stock, bond or commodity. With most investment transactions, the completion of the order does not occur on the same day, but may take as many as five trading days to complete. For this reason, the trade date should not be construed to also be the date that the transaction is fully completed.
A transaction is considered complete once the accounts involved have been settled. The date that the transaction is completed is generally known as the settlement date. Depending on the terms that govern the transaction, this settlement date may occur the next business day after the trade date connected with the purchase or sale. More often, the settlement date occurs anywhere from two to five business days after the trade date.
The trade date has value in several ways. First, it figures into the accounting process for the brokerage account. Brokers often begin to assess fees as of the date that the trade is initiated. By using this date as the starting point for the transaction, it is much easier to keep the accounting process connected with the account in order. In addition, the recording of the trade date also makes it possible for the broker to track progress on the transaction, thus making sure that it does not stall at some point and remain unresolved for an inordinate amount of time.
In some countries, the trade date may also be helpful when it comes to calculating taxes on the investments held by a specific investor. Depending on how the tax laws are structured, it may be possible for an investor to take advantage of any tax breaks associated with a given investment by using the trade date as the date for the transaction, even if the settlement date occurred in the following tax period. When this is the case, many countries have specific regulations that prevent investors from intentionally starting a transaction in one period and completing it during the next period as a means of lowering a tax burden. This usually takes the form of imposing a period in which the investor cannot buy back the investment, a period that may be anywhere from thirty days to several months.
Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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Malcolm Tatum
After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.
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![A transaction is considered complete once the accounts involved have been settled.]()
By: Kirill KedrinskiA transaction is considered complete once the accounts involved have been settled.
Discussion Comments
The trade date of a stock transaction is simple to remember because that is the day the transaction took place. When I first began stock trading, I didn't realize there was a difference between the trade date and the settlement date.
What can really get confusing is when you sell the stock before the settlement date even arrives.
Most day traders buy and sell a stock all in one day and trying to keep up with those records can be challenging and quite time consuming.
It all balances out in the end and makes sense once you understand how it all works, but it is very important to make sure you keep good records for tax purposes.
Whew! Reading that you have to take into account the specific taxes from the day of the trade as well as the broker's fees makes me want to stay out of this investment ring until I get more of handle on the ins and outs of this financial stuff (or wait until I make enough money to pay someone else to keep track of my trade data for me!)
I was new to the stock market and was trying to make some trades at a particular price and because I was being picky about my price (i was making a stop-limit trade or something like that where you can put in a price that you want to buy or sell a stock at) and I was surprised at how much later after I put in the order that the trade actually took place (which I now know is the trade date).
But I have found that even in doing this, you have to watch your pending transaction because if you do not put a date in which the trade must go through the trade will stay in waiting to be processed until your price comes up.
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