Most stock markets operate with a daily settlements system. This means that if you make a purchase on the stock market during one day, you will be able to settle out that trade by the end of the day. This is what makes it possible for the stock market to close at the end of the day and re-open the next – you don’t have to wait for your purchases or sales to settle before you can use those resources to purchase more stock.
In addition to stock markets, there are plenty of other financial institutions that use daily settlement options. For instance, most banks will use the daily settlement model, which means that the payments don’t always go into effect until the end of the day. However, the settlements will always occur during that day so that you won’t have to wait until well into the next day to find out whether or not your payments are going to clear.
There are a few disadvantages to using a daily settlement system. For instance, since the settlements only have to be daily, it is possible that they will not be taken out immediately. If there are other payments that occur immediately, it could leave you without enough money to do your next trading. While you will probably not have to worry about this for most trades on the stock market, it could turn into a problem at some point. The reason for that is that there are a few financial vehicles that will settle out almost immediately.
Most daily settlement systems are set up so that all of the outstanding transactions that need to be settled are settled out at the end of that particular day.
If you are not sure whether or not what you’re trading (or the bank that you go to) is using the daily settlement system, you can probably assume so anyway. The reason for that is that this is by far the most popular settlement system out there. Additionally, daily settlements are both highly useful and easy to put together.