What are settled and unsettled funds?

If you have a cash account, settled funds refer to two types of funds: 1. Newly deposited funds; 2. Funds settled from your sale transactions. Unsettled funds may be used to open new positions but closing positions with unsettled funds may result in free riding.

Unsettled funds refer to proceeds from the sale of fully paid for settled securities prior to settlement date. 

For example: 

On Jan 1, 202x, you deposited 1000 USD via wire transfer, and purchased 10 shares of ABC stock at $100/share. 

On Jan 2, 202x, you sold all 10 shares of ABC at $120/share and received $1200 total sale proceeds. Then the sale proceeds of $1200 will be settled on Jan 4, 202x. Prior to Jan 4, 202x, these $1200 would be considered as “unsettled funds”. 

Please note, all dates mentioned above or included are assumed to be trading days.