What does T+2 mean in the context of trade settlements?

T+2 refers to the settlement cycle for most securities transactions, indicating that trades are settled two business days after the trade date. This means that if a transaction occurs on a Monday, the settlement—the process where money and securities are exchanged—would typically take place on Wednesday.

This two-day settlement period, established for efficiency, helps facilitate liquidity and ensures that all logistics and administrative processes required for a successful exchange can be completed. It is important for investors and traders to understand this timing as it affects cash flow and how and when ownership of securities is officially transferred. Understanding the concept of T+2 is crucial for anyone engaging in securities trading, as it impacts everything from transaction costs, risk management, to the handling of dividends and interest.