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Unsettled Funds - Trading in Cash Accounts Interpretations of Regulation T, which govern how trades are paid for, state that funds from liquidations in cash accounts will not be available to pay for purchases until the settlement date of the sell.
Credit balances in a cash account may be used for purchases.
If the account has settled funds, there are no restrictions as to what may be purchased.
If the credit balance is a result of an unsettled sale of securities, certain restrictions may apply.
Unsettled proceeds from existing long positions can be used to purchase additional securities as long as the new purchase is not sold prior to the settlement date of the original sale that generated the proceeds used to finance the purchase.
If it is sold prior to the settlement date of the funding sale without additional funds being deposited, it will be considered a free ride under Federal Reserve Regulation T.
Plain English.....You can buy a stock one day and sell it the next.....buy another stock that day but, must hold that stock for 3 days before selling it...(waiting for it to settle)......
If you have a margin account you can do up to 4 day trades over a 5 day period (buying and selling a stock the same day)...
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A situation that occurs when a customer purchases a security, then sells the same security and uses the proceeds to pay for the purchase. This practice is prohibited by Federal Regulation T which requires that customers pay for securities within prespecified time frames. Firms are required to freeze or restrict customer accounts that engage in this practice for 90 days.
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