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An Introduction to Trading in the Financial Markets: Global Markets, Risk, Compliance, and Regulation by R. Tee Williams

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8

Step 8: Settlement

All trades culminate in settlement: the seller exchanges ownership of instruments for the purchase amount, which the buyer pays (see Figure 5.8). In many commercial transactions, the two events occur simultaneously with the agreement to buy and sell—the trade. However, all the activities between Step 4 and Step 8 are required and, as of this writing, entail three business days.

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Figure 5.8 Settlement is the culmination of the trading process in which a buyer delivers funds in exchange for ownership delivered by the seller.

We noted in Part 2 when we discussed risk that this delay increases the risk that something will happen ...

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