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I am trying to get into day trading stocks, however, I was wondering how this would work with settlement periods. According to this question on StackExchange, a settlement period is when both parties fulfill the trade. However, if this period takes a couple days, wouldn't stock prices fluctuate in this period? Especially if someone is a day trader, wouldn't this interfere with their gains because the price might have fluctuated to put them at a loss instead of a gain?

I am a complete beginner to trading, so sorry if this is a really stupid question.

Shivang Patel
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Settlement is the period in which the actual funds are transferred between the two parties involved in the trade (via their representatives, the brokerage firm) and the Federal institutions involved in the clearing of funds. When you execute a trade and are matched with a counterparty, the trade is finalized and your prices are locked in. Full stop, it's done.

You can think of it as agreeing on a deal on Tuesday but the other party has to mail you the funds so it will take a few days to actually put your hands on the money (and your items are presumably in the mail at the same time). If you sold a painting in this way and the artist dies on Wednesday, raising the value on the market, you're not going to be able to cancel the trade and get a higher price for your now sold painting - it's in the mail along with your payment, so it's out of your control.

If you're day trading, you probably have a margin account. This is a way of mitigating the settlement period. Your broker is basically loaning you the money temporarily and at 0% interest because the deal is done. There is no risk to the broker because the settlement mechanism is just a waiting period, there's no chance for the deal to fall through (with very rare exceptions that are outside the scope of your question).

Brian R
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