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No, when you tell a broker to buy $X of stock, they send a record of that purchase to a clearing firm. The clearing firm, in order to make sure none of the Brok
by stu2b50 6y ago
No, when you tell a broker to buy $X of stock, they send a record of that purchase to a clearing firm. The clearing firm, in order to make sure none of the Brokers becomes insolvent before settlement, requires every Broker offer up collateral - it's collateral, it's not spent if everything goes well.
It's the SEC requiring brokers offer up insurance in case they explode.
Then, 2 days later, your actual money goes to the clearing firm and is exchanged for stock.
- hahajk 6y agoAnd this is why it’s confusing to the unsophisticated investor. Why didn’t they send my money in the first place? They can call it 100% collateral if they really want, but it’s basically payment up front. Once they get the stock I asked for, they take the money. I suspect there are a lot more complicated trading mechanisms that take advantage of that 2 day gap that make my plan unfeasible though.