understanding a trade confirmation

In short

A friend of mine once opened a trade confirmation and felt like he had been handed a contract in a foreign language. If you have ever stared at one of those slips and wondered what every line meant, you are in good company. The confirmation is the broker's written record of a trade you made, sent after the order is filled. Read it the same day, and check the symbol, the number of shares, the price, and the buy or sell side against what you meant to do. Add up the fees and compare them to your fee schedule. Look at the settlement date, because that is the day the trade is final. If anything looks off, call the broker right away, since the firm sets a short window for reporting errors.

The whole of it

What it is

I once watched a neighbor of mine sell a few shares and then lose track of what he had paid in fees. He had the money in his account, but he could not tell you how it got there. That is the problem a trade confirmation solves.

A trade confirmation is a written notice from your broker. It tells you that an order you placed has been carried out. It lists what was bought or sold, how many shares, at what price, and what it cost. Federal rules require brokers to send one. The rule is SEC Rule 10b-10, and it sets out the facts a broker must disclose to a customer at or before the completion of a trade. Think of it as a receipt. It does not ask you to do anything. It shows you what already happened.

Most brokers now send it by email or post it in your online account. Some still mail paper. The form varies from firm to firm, but the core facts are the same.

How it works

If you have placed a trade, you have probably watched the price flash on your screen and wondered when it became real. Here is the order of events.

You place an order. The broker sends it to a market or another venue where it can be filled. Once it fills, the broker records the details and produces the confirmation. The confirmation usually lands in your account that day or the next business day.

Then comes settlement. Settlement is the moment the shares and the cash actually change hands. The buyer must deliver the cash, and the seller must deliver the shares. The trade date and the settlement date are not the same day. The confirmation shows both. For most stock trades, settlement follows the trade date by a set number of business days, and the SEC has changed that cycle over the years. The cycle is the current figure, which the official source publishes each year. Check your own slip for the date your broker lists.

That gap matters. Until settlement, the trade is done but not final. Cash from a sale may show in your account, yet your broker may limit what you can do with it until settlement completes.

The numbers, and where to find yours

When I read my first slip, I did not know which numbers to trust. Let me walk through the ones that count.

Start with the top of the page. You will find the account number, the trade date, and the settlement date. Next comes the security, shown by its name and its ticker symbol, which is the short code for the stock or fund. Then the side, which says buy or sell. Then the quantity, which is how many shares, and the price per share.

Below that, the broker lists the principal, which is the quantity times the price. After it come commissions, which are the fee for placing the trade. You may also see regulatory fees. On a sale, the SEC charges a small fee under Section 31 of the Securities Exchange Act, and the rate is set each year at the current figure, which the official source publishes each year. Some slips show that fee as its own line. Others fold it into a total.

The last line is the net amount. On a buy, it is the principal plus the costs. On a sale, it is the principal minus the costs. That is the figure that moves in or out of your account.

For the rules on what a broker must tell you, the primary source is SEC Rule 10b-10 itself. The commission and fee rates come from your own broker's published fee schedule. Look for it on the firm's website under pricing or fees. The confirmation should match that schedule.

A worked example

Let me tell you about a woman named Dana. She is a nurse who decided to sell some shares she had held for a while. She placed an order to sell 40 shares of a company at a price she hoped to get.

The order filled at $24.50 a share. Her confirmation showed these figures.

The principal came to 40 shares at $24.50 a share, which is $980.00. Her broker charged no commission on the trade, so that line read $0.00. The broker did pass along a small regulatory fee of $0.02. So her net amount was $980.00 minus $0.02, which is $979.98.

Dana checked the slip against her intent. The symbol was right. The side said sell, which was right. The quantity was 40, which was right. The price was $24.50, which matched the fill she saw on her screen. Then she checked the math herself. Forty times $24.50 is $980.00. The numbers held.

Then she looked at the settlement date and wrote it on her calendar. She knew the sale was not final until that day. She also knew the proceeds were hers to plan around once settlement finished.

Had the quantity read 4 instead of 40, she would have called the broker that afternoon. A small slip is easy to fix early. It gets harder with time.

Where it goes wrong

I have known careful people who tossed these slips in a drawer unread. Nobody means to be careless. But the confirmation is your chance to catch a mistake while it is still cheap to fix.

The first trouble is a simple error. The wrong symbol gets entered. A buy gets recorded as a sell. A share count is off by a digit. Check each of these against your own order, and keep a record of what you meant to do.

The second trouble is a price that surprises you. A market order fills at whatever price is available, which can differ from the last price you saw. A limit order fills at your price or better. Know which kind you placed, so the fill price does not startle you.

The third trouble is fees you did not expect. A broker may charge a commission, a regulatory fee, or another cost on certain trades. Compare the slip to the firm's fee schedule. If a charge is not on the schedule, ask about it.

The fourth trouble is the clock. Brokers set their own deadline for reporting a problem. Many ask customers to raise it promptly, and the firm's account agreement spells out the terms. The customer should read that agreement and act within it.

The fifth trouble is mixing up the trade date and the settlement date. A sale can show up as cash before it has settled. The broker may hold limits on that cash until settlement is done. Plan around the settlement date, not the trade date.

Last, keep your confirmations. They show your cost basis, which is what you paid for a holding, and that figure matters when taxes come around. A tax professional or the IRS can tell you how basis is used. The slip is the record that backs it up.

Questions to answer before you leave this page

Do you know where your broker posts confirmations, and have you ever opened one all the way through? Can you find the trade date and the settlement date, and do you know why they differ? When you read the symbol, the side, the quantity, and the price, do they match what you meant to do? Have you multiplied the quantity by the price yourself to check the principal? Do you know every fee on the slip, and does each one appear on your broker's fee schedule? Do you know how long your broker gives you to report a mistake, and where that deadline is written? And are you keeping these slips somewhere safe, so that the record is there when you need it?