Settlement vs. trade date?

[OxygeN]

Hi all.
Can anybody help me understand the difference between settlement and trade dates?
On IBKR I read that for stock exchanges, the settlement date is T+1 - where T is the date when I placed the order.
For Forex (currency conversions) it's T+2 days... So I think I understand that I should not do currency conversion (CHF --> USD) and on the same day buy ETFs?!

Any help in understanding will be appreciated - thanks!

 

[Baptiste Wicht]

Hi

This is unfortunately a complicated system from the US. Settlement means finalization. So, if you do a trade on T, it's only fully valid on T+1. For stocks, it really does not matter unless you would do some active trading.

For forex, it's more important because you can't use the money until it's settled. So, whenever you do a currency conversion, you will unfortunately have to wait 2 days for the money to settle before you can use it. If that's the case, IB will tell you do not have enough money settled to do the operation.

Strangely, when you do an automated conversion (buy something in USD but only have CHF), this will only require the CHF to be settled, not the operation itself. So, there are some exceptions to the settlement.

Also, if you have a margin account, it does not matter since you do not need to wait for settlement.

 

[OxygeN]

OK, so what I can conclude is:
convert CHF --> USD and wait 2 days. Only after this time period I should buy ETFs - right?

 

[Baptiste Wicht]

OK, so what I can conclude is:
convert CHF --> USD and wait 2 days. Only after this time period I should buy ETFs - right?

Yes, if you do a manual conversion, that should be the case.