Settlement
In financial transactions, settlement is the process of completing a trade by exchanging payment and the agreed financial instrument between the buyer and seller. Once settlement is complete, the transaction is considered completed and both parties have fulfilled their respective obligations.
Definition: Settlement and Clearing
Historically, the settlement period gave counterparties sufficient time to complete the necessary steps to settle a trade. Because funds and securities were transferred through less automated processes, including wire transfers and, in some cases, the physical delivery of securities, settlement took longer to complete.
Today, trades are recorded immediately, but the final transfer of ownership only occurs after the settlement date (generally one or two business days after the trade date (T+1 or T+2), depending on the product).
Transactions involving securities, currencies, and derivatives are now usually cleared by central clearinghouses. These clearinghouses act as intermediaries between buyer and seller, helping to reduce the risk that either party fails to deliver funds or securities. Settlement is then completed through the clearing system.
Transactions & Settlement
Although a trade is executed immediately, two important dates apply:
Trade date:
The date on which a trade is executed.
Settlement date:
The date on which the trade is settled through the exchange of cash and securities.
On the settlement date, payment for purchases is due, securities sold must be delivered, and ownership is transferred to the buyer. For securities, the transfer agent (or the relevant securities depository, depending on the market) records the new owner.
Overview of settlement periods by product
Settlement periods vary depending on the type of financial instrument.
- Stocks (except US, Canadian and Mexican stocks), ETFs, and warrants generally have a settlement period of two business days (T+2).
- US, Canadian, and Mexican stocks, as well as options and futures contracts generally settle within one business day (T+1).
Please note that settlement may be affected by public holidays in the relevant market or currency. If the settlement date falls on a public holiday, settlement will be postponed to the next available business day.
Please refer to the table below for a general overview of the most common settlement periods:
| Asset class | Settlement period |
|---|---|
| Stocks/ETPs/ADRs (Except US, Canadian and Mexican Stocks) | T+2 |
| US, Canadian & Mexican Stocks/ETPs | T+1 |
| Stock Options (Equity Options) | T+1 |
| Index Options | T+1 |
| Futures | T+1 |
| FOPs (Future Options) | T+1 |
| Forex | T+2 |
| Bonds | Usually T+2, US Treasuries T+1 |
| CFDs | Same as Underlying |
| Metals (XAUUSD, XAGUSD) | T+2 |
| Warrants/Structured Products | T+2 |
Since May 2024, the settlement period for US, Canadian, and Mexican stocks and certain other financial products has been shortened from two business days (T+2) to one business day (T+1). This change may affect certain account processes, depending on the account type.
More information can be found here: Shift to T+1 settlement cycle
Settlement period: Stocks and Forex
Cash account
For stocks denominated in foreign currencies, the settlement period determines when the trade and the related currency conversion are completed. If you do not already hold the required currency, you may need to convert funds before purchasing the stock.
In most cases, the settlement period for the stock purchase and the currency conversion is aligned. However, U.S., Canadian, and Mexican stocks generally settle on T+1, while currency conversions generally settle on T+2. If the settlement periods differ, the currency conversion may need to be arranged in advance so that the required currency is available by the stock settlement date.
With a cash account, proceeds from a sale are only available as settled funds once the transaction has settled. This means that unsettled proceeds may not be available for subsequent trades.
Margin account
With a margin account, you can generally use the proceeds from a sale immediately, even though the sale has not yet settled.
The following example illustrates how settlement timing can affect debit and credit interest.
For example, suppose you sell a stock on Monday under a T+2 settlement period. The sale proceeds will settle on Wednesday. If you use those proceeds to purchase another stock with the same T+2 settlement period, the purchase will also settle on Wednesday. Because the settlement dates are aligned, you will generally not incur debit interest, provided your settled cash balance in that currency is positive on the settlement date.
If the settlement dates are not aligned, however, you may temporarily have a negative settled cash balance, which may result in debit interest.
Please note that credit interest starts accruing only after transactions have fully settled. This also applies to cash accounts.
Settlement period: Options and Forex
Cash account
Option trades generally settle within one business day (T+1). Currency conversions, however, generally settle within two business days (T+2). As a result, if you convert currency to trade options, you will generally need to wait one business day before placing an option order.
Margin account
If you trade an option without sufficient funds in the quoted currency and convert funds into that currency, the required amount will be temporarily borrowed until the currency conversion has settled. During this period, debit interest may apply.
Options on Expiration Date
Options differ in their exercise style between European-style and American-style options:
- European-style options can only be exercised on the expiration date
- American-style options can be exercised at any time up to and including expiration
The exercise style is independent of where the underlying is listed.
- Index options are typically European-style
- Equity (stock) options are typically American-style
If they have not been exercised or assigned earlier, options are settled at expiration.
Long Call
If you have bought a Call option, you have the right to buy the underlying asset and are positioning for a price increase. On the expiration date, the system will determine whether the option is In The Money.
| Long Call | Scenario (if no action is taken) |
|---|---|
| In the money (Market price > Strike price) | If your option is In The Money, two scenarios are possible: 1. Sufficient cash or margin available If sufficient cash or margin is available to allow exercise, the option will be automatically exercised at the end of the expiration date. You will buy the underlying asset in accordance with the contract specifications (typically 100 shares per option contract). 2. Insufficient cash or margin available If there is insufficient cash or margin to allow exercise and the resulting exposure is considered excessive, Interactive Brokers reserves the right to: -Liquidate the option before expiration. -Allow the option to expire worthless. -Liquidate other positions and/or allow delivery before partially or fully liquidating the resulting underlying position. |
| Out of the money (Market price < Strike price) | If your option expires Out of The Money, no action is taken. The option will remain visible in the portfolio until expiration. |
Long Put
If you have bought a Put option, you have the right to sell the underlying asset and are positioning for a price decrease. On the expiration date, the system will determine whether the option is In The Money.
| Long Put | Scenario (if no action is taken) |
|---|---|
| In the money (Market price < Strike price) | If your option is In The Money, two scenarios are possible: 1. Sufficient cash or margin available If sufficient cash or margin is available, the option will be automatically exercised at the end of the expiration date. You will sell the number of shares specified by the option contract (typically 100 shares per option contract). This may result in a short position. 2. Insufficient cash or margin available If there is insufficient cash or margin, IBKR reserves the right to: – Liquidate the option before expiration – Let the option expire worthless and/or – Liquidate any other position and/or allow delivery and partially or fully liquidate the underlying asset at any time |
| Out of the money (Market price > Strike price) | If your option expires Out of The Money, no action is taken. The option will remain visible in the portfolio until expiration. |
Short Call
If you have sold a call option, you receive an option premium in exchange for the obligation to sell the underlying asset if the option is exercised. You are positioning for a price decrease. On the expiration date, it is determined whether the option is in the money.
| Short Call | Scenario (if no action is taken) |
|---|---|
| In the money (Market price > Strike price) | If your option is In The Money, two scenarios are possible: 1. Sufficient cash or margin available If the option is exercised, you will be required to sell the number of shares specified by the option contract (typically 100 shares per option contract). This may result in a short position. 2. Insufficient cash or margin available If the exposure is considered excessive, IBKR reserves the right to: – Liquidate the option before expiration – Let the option expire worthless and/or – Liquidate any other position and/or allow delivery and partially or fully liquidate the underlying asset at any time |
| Out of the money (Market price < Strike price) | Important: For U.S. and Canadian options, option holders have up to 30 minutes after market close to submit an exercise request. An option that is Out of The Money at market close may still be exercised due to price movements outside regular trading hours.If the option ultimately expires Out of The Money, no action is taken. |
Short Put
If you have sold a put option, you receive an option premium in exchange for the obligation to buy the underlying asset if the option is exercised. You are positioning for a price increase. On the expiration date, it is determined whether the option is in the money.
| Short Put | Scenario (if no action is taken) |
|---|---|
| In the money (Market price < Strike price) | If your option is In The Money, two scenarios are possible: 1. Sufficient cash or margin available If the option is exercised, you will be required to buy the number of shares specified by the option contract (typically 100 shares per option contract). 2. Insufficient cash or margin available If the exposure is considered excessive, IBKR reserves the right to: – Liquidate the option before expiration – Let the option expire worthless and/or – Liquidate any other position and/or allow delivery and partially or fully liquidate the underlying asset at any time |
| Out of the money (Market price > Strike price) | Important: For U.S. and Canadian options, option holders have up to 30 minutes after market close to submit an exercise request. An option that is Out of The Money at market close may still be exercised due to price movements outside regular trading hours.If the option ultimately expires Out of The Money, no action is taken. |
In some cases, as an option holder, you do not need to take any manual action. For example, if multiple option contracts expire on the same date, their economic effects and risks may offset each other.
At expiration, options are settled either in cash or through physical delivery of the underlying asset.
- Physical delivery results in the receipt or delivery of the underlying asset in accordance with the contract specifications (such as the contract multiplier and strike price). For stock options, this means the delivery of the underlying shares. For futures options, it results in the delivery of the underlying futures contract.
- Cash settlement is based on the difference between the strike price and the settlement price of the option. Depending on the outcome, funds are either credited to or debited from your account.
Settlement period: Futures
Futures contracts generally have a settlement period of one business day (T+1).
Futures on their expiry
At expiry, futures contracts are settled either in cash or through physical delivery, depending on the contract specifications. Physical delivery involves the transfer of the underlying commodity from the seller to the buyer.
Please note: Physical delivery is generally not available through LYNX. Certain physically delivered futures contracts are subject to our partner’s Futures Close-Out Policy. If you hold such a contract, you are responsible for closing or rolling your position before the applicable Close-Out Deadline. Otherwise, Interactive Brokers may liquidate your position without additional prior notice in accordance with its Futures Close-Out Policy.
For physically delivered futures contracts, the following dates are relevant to the delivery process:
- First Position Date: The first date on which the clearing system accepts delivery intentions and assignments. Under Interactive Brokers Futures Close-Out Policy, the First Position Date and Time serves as the cutoff for long futures positions.
- Last Trading Date: The last date on which a futures contract can be traded. Under Interactive Brokers Futures Close-Out Policy, this serves as the cutoff for short futures positions.
The applicable close-out dates and times vary by futures contract. Please refer to the Futures Close-Out Policy for the relevant deadlines.
Futures settlement overview
For more information about the Close-Out Policy of Futures, please visit our partner’s page:
Futures Close Out | Interactive Brokers Ireland
The table on that page shows the applicable Close-Out and liquidation times for specific futures contracts. Futures positions should generally be closed or rolled before the applicable Cutoff time to avoid settlement obligations.
- Long Futures Cutoff: Date by which long positions are expected to be closed.
- Short Futures Cutoff: Date by which short positions are expected to be closed.
FAQ
How do I see if I have a cash or a margin account?
You can check your account type in the Client Portal by navigating to Settings > Account Type.
Alternatively, you can check your buying power in one of the trading platforms. If your buying power exceeds your available cash balance, your account has margin capabilities. If your buying power is equal to your available cash balance, you have a cash account.
When must I buy a stock to be eligible for dividend payments?
To be eligible for a dividend, you must generally purchase the stock before the ex-dividend date. If you buy the stock on or after the ex-dividend date, you will not receive the upcoming dividend.
The ex-dividend date is the first day a stock trades without dividend rights. You can view upcoming dividend dates in Trader Workstation (TWS) by right-clicking the stock and selecting Dividend Schedule.
The record date is the date on which the company determines which shareholders are entitled to receive the dividend. If you purchase the stock before the ex-dividend date, you will generally be recorded as a shareholder by the record date and therefore qualify for the dividend.
How do warrants and other structured products settle?
Warrants and other structured products, such as certificates and knock-out products, are generally cash-settled. The applicable settlement terms are determined by the issuer and can be found in the product’s Key Information Document (KID).
You can access the KID by logging in to the Client Portal, clicking the “?” icon in the top-right corner, selecting Support Center, and then clicking PRIIPs KID.
To become eligible for dividends, what is the last date to exercise an option?
Under certain circumstances, the early exercise of an option contract might be economically beneficial. Therewith, an option holder receives the stock dividend and waives the remaining time value of the option contract. Clients are notified of upcoming dividends via TWS, Client Portal and by E-Mail, should an underlying stock of a hold option contract pay a dividend. Also, the economic impacts of early exercises or assignments are projected.
According to the EUREX exchange, stocks assigned from option contracts are settled within 2 business days.
The clearing instructions also specify that dividends are entitled to the owner of the option contract after exercising the option.
The exercise of an option contract one business day before the ex-date is sufficient to become eligible for a stock dividend!
Is it possible to trade options on a cash account?
Yes. Options can generally be traded in a cash account, provided the position is fully covered. For example, this includes covered calls (where you own the underlying shares) and cash-secured puts (where sufficient cash is available to purchase the underlying shares if assigned).
In general, only cash-settled options or fully covered physically settled options can be traded in a cash account. Strategies that could create uncovered obligations generally require a margin account.
When should I close my futures position to avoid physical delivery?
Certain physically delivered futures contracts are subject to our partner’s Futures Close-Out Policy. If you hold such a contract, you should close or roll your position before the applicable Close-Out Deadline to avoid physical delivery. If you do not close or roll your position in time, Interactive Brokers may liquidate your position without additional prior notice in accordance with its Close-Out Policy.
More information and the applicable deadlines can be found in our partner’s Close-Out Policy:
Futures Close Out | Interactive Brokers Ireland
When exactly do options settle?
The settlement of options depends on the exchange, the underlying asset, and the contract specifications. The settlement method and timing therefore vary between products.
- EUREX index options (e.g. DAX): On the expiration date, an auction takes place between 1:00 p.m. and 1:05 p.m. (CET) to determine the settlement price. Based on the opening prices established during the auction, the settlement value is calculated and cash-settled positions are settled later that day.
- EUREX equity options: EUREX stock options remain tradable until the close of trading (5:30 p.m. CET) on the last trading day. If exercised or assigned, settlement takes place in accordance with the contract specifications.
- S&P 500 (SPX) options: Standard monthly SPX options use AM settlement, meaning trading ends on the business day before the expiration date. On the expiration date, the opening prices of all S&P 500 constituent stocks are used to calculate the settlement value. This settlement method applies only to standard monthly SPX options expiring on the third Friday of the month. See Option Expiration: AM or PM below for more information.
- U.S. equity options: U.S. stock options generally use PM settlement, meaning they remain tradable until the close of trading on the expiration date. If exercised or assigned, settlement takes place in accordance with the applicable settlement rules.
Information about the settlement method for a specific option is available in the trading platforms. Additional information about option settlement and expiration can also be found on the websites of EUREX and Cboe.the trading platforms. More information about settlement and expiry of options can also be found on the exchange websites of EUREX and CBOE.
If I directly reinvest proceeds from a stock sale, will I borrow cash?
Not necessarily. If the proceeds from a stock sale are reinvested in another financial instrument with the same settlement period, the settlement dates will generally align. If the sale proceeds fully cover the purchase amount, no cash borrowing occurs.
If the purchase has a shorter settlement period than the sale, temporary cash borrowing may occur until the sale proceeds have settled. In this case, debit interest may apply.
Credit or debit interest is determined based on your settled cash balance after settlement.
How can I find settlement details for a specific product?
You can find the settlement details in the product’s Contract Details.
To access this information in Trader Workstation (TWS):
- Right-click on the product.
- Select Financial Instrument Info → Details.
This will open a webpage containing the contract details for the selected product. The applicable settlement information is available in the Settlement Method section.
Where can I find more information about the T+1 settlement cycle introduced in May 2024?
Since the introduction of the T+1 settlement cycle, certain account processes may differ depending on whether you have a cash account or a margin account.
For more information, please refer to our article: Shift to T+1 settlement cycle
Currency Holidays and Settlement Timelines
Most currency pairs settle within two business days (T+2), while some pairs, such as USD/CAD, generally settle within one business day (T+1).
For settlement to occur, the central banks of both currencies involved must be open. If either country observes a bank holiday, settlement is postponed until the next business day on which both payment systems are operating. As a result, holidays in major currencies, particularly the USD, can affect the settlement of other currency pairs, even when USD is not directly involved (for example, EUR/JPY).
Delayed settlement may temporarily affect cash balances and financing costs. The applicable settlement dates can be found in the Currency Settlement Holidays Calendar: Currency Settlement Holidays | Interactive Brokers Ireland type, counterparties, and applicable regulations. Always verify the exact settlement timeline in your trading platform or with your broker.
Option Expiration: AM or PM
Every option contract has a specified expiration date and time. Options may expire either in the morning (AM) or at the close of trading (PM).
- AM-settled options stop trading on the business day before expiration. The final settlement value is determined on the expiration date, typically using the opening prices of the underlying instrument.
- PM-settled options remain tradable until the close of trading on the expiration date. The final settlement value is determined after the market closes.
Example: SPX Options (Cboe):
Standard monthly SPX options are AM-settled. Trading ends at 3:15 p.m. CST on the business day before expiration. On the expiration date, the official opening prices of all S&P 500 index components are used to calculate the final settlement value.
SPXW options are PM-settled. Trading continues until 3:00 p.m. CST on the expiration date, and the final settlement value is determined based on prices at the close of trading.
Please note: AM settlement carries additional market risk because trading ends before the final settlement value is determined. As a result, the settlement value may differ from the market price at the close of the last trading day.trading day is different than expiration day, meaning that the price related to the settlement will not be the one at end of trading day.
How do I identify Options with AM/PM Settlement?
Each option contract has a defined expiration date and time. Expiration can occur either in the morning (AM) or in the afternoon (PM). By default, most options expire PM.
In TWS (Trader Workstation):
- Right-click on the option contract.
- Select Financial Instrument Info → Description.
- If the contract is AM-settled, you will see “AM” displayed in orange next to the expiration date. PM-settled options are the default, so this label is not shown.
In Option Chains (e.g., OptionTrader):
- AM-settled contracts are also marked with an orange “AM” next to the expiration date.
In the Mobile App:
- After selecting Options for a given ticker, you will see an overview of contracts.
- AM-settled options are indicated by “(AM)” next to the expiration date. PM-settled contracts are shown without any special label.
In LYNX+:
- Currently, LYNX+ does not directly display AM or PM settlement in the option overview.
- You can verify this by checking the difference between the last trading date/time and the expiration details.
Settlement style affects the timing of last tradable day and the determination of the final settlement price. Always verify settlement terms before trading an option contract.