When You Sell a Stock Where Does the Money Go?

When you sell shares of stock, the process involves several distinct steps before the funds become available. Executing a sell order initiates a sequence of events that moves the proceeds from the market to your personal access. This article clarifies the path your money takes after a stock sale.

Funds in Your Brokerage Account

Upon selling a stock, the immediate destination for the sale proceeds is your brokerage account. A brokerage account serves as a specialized financial account where you hold investments like stocks, bonds, and mutual funds, as well as cash. When your sell order is executed, the proceeds are credited to the cash balance within this account.

While the amount appears in your brokerage account’s cash balance, it is not yet fully settled or available for immediate withdrawal. The funds are initially considered “unsettled” cash, reflecting that the underlying transaction has not yet completed its processes. Your brokerage firm manages these funds until the trade officially settles.

Understanding Trade Settlement

Selling a stock involves a process called trade settlement. This refers to the period required for the official exchange of securities for cash between the buyer and the seller. The standard settlement period for most stock trades is “T+2,” meaning the transaction officially settles two business days after the trade date.

For example, if you sell a stock on a Monday, the funds from that sale will typically settle and become available on Wednesday, assuming no market holidays. This two-day period allows for the necessary administrative processes to confirm the transfer of ownership and payment.

Withdrawing Your Sale Proceeds

Once the trade has settled, the funds from your stock sale become available for withdrawal from your brokerage account. Brokerage firms offer several common methods for you to access these funds. One frequent option is an electronic funds transfer (EFT), often referred to as an Automated Clearing House (ACH) transfer, which moves money directly to a linked bank account. ACH transfers typically take one to three business days to process.

Another method is a wire transfer, which usually offers faster access to funds, often within the same business day or the next. Wire transfers typically incur a fee. Some brokerages also allow clients to request a physical check, which is mailed to your address. To initiate any withdrawal, you typically log into your brokerage account online or use their mobile application.

Deductions and Reporting

When you sell stock, certain amounts may be deducted from your gross sale proceeds. While many brokerage firms now offer commission-free trading for stocks, some may still charge a small commission. Additionally, regulatory fees, such as those imposed by the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA), are typically passed on to the seller. These fees are usually very small.

After the calendar year ends, your brokerage firm will provide you with Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions.” This document reports the gross proceeds from your stock sales to both you and the Internal Revenue Service (IRS). This form is crucial for preparing your annual income tax return, as it provides the necessary information for calculating any capital gains or losses.