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What is a Holding Period?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 September 2016
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    Conjecture Corporation
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In investing circles, a holding period is a term that is used to describe the period of time that an investor either holds or is projected to hold a specific security. This type of holding period can be applied to both long positions and short positions. The term is also used in banking situations, and is used to identify the amount of time that occurs between the receipt of a deposit and when it is actually posted to the customer’s account and is available for withdrawal.

With a long position, the holding period begins when the investor settles or completes the purchase of the security. The period continues until the sale of the security is completed to a different investor. The same general approach is used when it comes to defining the holding period with a short position. In this scenario, the period begins when the investor or short seller borrows the security and ends when the security is sold back or returned to the owner. In both cases, the holding period identifies who has possession of the security, and thus determines who is in a position to realize a return from that security.

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Defining the holding period is not only important to identify who benefits from an upward movement in the worth of the security; the defined time frame also makes is possible to determine who is responsible for paying taxes on any return that is realized, or who can claim a loss if the security decreases in value. This makes documenting the start and end of the period accurately very important, since the profit or loss generated may have a significant impact on the overall tax accounting for all investments made during the same time frame. For example, if one asset generates a significant return during that holding period, and another asset posts a loss, the investor’s overall tax debt is reduced for that period.

A holding period may be defined in terms of a calendar year, or some other specified time frame. For example, the period may begin on 1 January and end on 31 December of that same year. The period may also define a series of consecutive months, such as from May to November. The exact configuration of the period will depend on when the asset is acquired and when it is released to another investor.

With banking, the holding period refers to the interim between the receipt of a deposit and when that deposit is posted to the customer’s account. This is important, since banks often distinguish between when a deposit is received and when those funds are made available, based on the time of day the deposit is made. For example, a deposit received in the afternoon may not post to the customer account until the following business day. Understanding what constitutes a normal interim for deposits will make it easier for the account holder to know when those funds will be available for withdrawals.

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