Also known as a trading date or transaction date, the trade date is the date in which an investment transaction is initiated. On this date, an investor authorizes a broker to begin the process of buying or selling a specific stock, bond or commodity. With most investment transactions, the completion of the order does not occur on the same day, but may take as many as five trading days to complete. For this reason, the trade date should not be construed to also be the date that the transaction is fully completed.
A transaction is considered complete once the accounts involved have been settled. The date that the transaction is completed is generally known as the settlement date. Depending on the terms that govern the transaction, this settlement date may occur the next business day after the trade date connected with the purchase or sale. More often, the settlement date occurs anywhere from two to five business days after the trade date.
The trade date has value in several ways. First, it figures into the accounting process for the brokerage account. Brokers often begin to assess fees as of the date that the trade is initiated. By using this date as the starting point for the transaction, it is much easier to keep the accounting process connected with the account in order. In addition, the recording of the trade date also makes it possible for the broker to track progress on the transaction, thus making sure that it does not stall at some point and remain unresolved for an inordinate amount of time.
In some countries, the trade date may also be helpful when it comes to calculating taxes on the investments held by a specific investor. Depending on how the tax laws are structured, it may be possible for an investor to take advantage of any tax breaks associated with a given investment by using the trade date as the date for the transaction, even if the settlement date occurred in the following tax period. When this is the case, many countries have specific regulations that prevent investors from intentionally starting a transaction in one period and completing it during the next period as a means of lowering a tax burden. This usually takes the form of imposing a period in which the investor cannot buy back the investment, a period that may be anywhere from thirty days to several months.
