Definition
Settlement is the final step of a trade, when ownership of the asset is transferred and payment is completed. The timing, method and responsible institutions depend on the market, instrument and venue, and the rules change over time.
How it works
Cycles are written as T+N, meaning N business days after the trade date. Some markets settle equities on T+1, others on T+2 or different schedules, and some instruments settle the same day; holidays and cut-off times can move the date.
Derivatives settle at expiry by cash payment or physical delivery, depending on contract terms, and crypto transfers settle on the network after enough confirmations. Settlement risk is the chance that one side fails to deliver or pay, which clearing arrangements and delivery-versus-payment rules aim to reduce.
Formula / convention
Settlement date = trade date + N business days, where N and the holiday calendar are set by the venue, product and date
Illustrative example
Illustrative: you buy 1,000 shares at HK$12.50 on a Thursday, so 1,000 × 12.50 = HK$12,500 must be paid by the settlement date. Under T+1 that date is Friday, and under T+2 it is the following Monday, because weekends are not business days. If Friday were a market holiday, the same two dates would move to Monday and Tuesday.
What to watch for
Never assume a universal settlement cycle: rules differ by market, product and venue, change over time, and can differ for cross-border or off-exchange trades. Confirm the current cycle, cut-off times and holiday calendar with your broker or the venue before relying on a specific date.