What is a settlement date?

The settlement date is the date when a trade is final, and the buyer must make payment to the seller while the seller delivers the assets to the buyer. The settlement date for stocks and bonds is usually two business days after the execution date (T+2). For government securities and options, it's the next business day (T+1).

What is cash settlement in a futures contract?

In futures contracts, cash settlement typically involves determining the settlement price based on a reference rate, such as an index or a market price, at the expiration or settlement date. The difference between the settlement and contract prices is then settled in cash.

What is the lag between transaction and settlement dates?

The financial market specifies the number of business days after a transaction that a security or financial instrument must be paid and delivered. This lag between transaction and settlement dates follows how settlements were previously confirmed, by physical delivery.

How long can a forward exchange transaction settle?

There is no absolute limit in the market to restrict how far in the future a forward exchange transaction can settle, but credit lines are often limited to one year. The settlement date is the date on which a trade is final, when the buyer pays the seller and the seller delivers cleared assets to the buyer.