![]() ABC is sold but full payment was not made for the ABC purchase. The purchase of ABC creates a $900 debit balance. To avoid a freeride violation, you must settle your buy order independently of selling the same security. To avoid a liquidation violation, see How do I cover my trades? above.Īn account in which the client has to pay for all trades in full by settlement date.Ī freeride violation is the result of buying a security in a Cash Account and then selling the same security without making separate payment on the full purchase price by settlement date. In addition, a permanent, Settled Cash-Up-Front restriction will be placed on the account after five or more trade settlement violations within the life of the account. ![]() Subsequent liquidation violations in a rolling twelve month period will result in the account being restricted to Settled Cash-Up-Front for 90 days. If an option or mutual fund is sold the day after a stock is purchased, a liquidation violation will be charged even if the proceeds settle on or before the purchase settlement date. The sale of XYZ results in a Liquidation Violation. ![]() Two days later XYZ is sold but payment was not made for the ABC purchase. The purchase of ABC results in a $900 debit balance. This trade violation is the result of buying a security which creates a Cash Account debit or Margin Account Fed Call, and then covering the amount due by selling another security the following trade date or later. NOTE: For most equity transactions, the settlement period is three business days from the day your order executes. Depositing marginable securities to cover funds due is only possible in a margin account, not a cash account. If you choose to cover the amount due by selling a different security, the sale must occur on or before the purchase date to avoid a liquidation violation. If your purchase exceeds the funds available in your account, in most cases, you can cover your trade by making a deposit of funds or marginable securities on or before trade settlement. ![]() Unsettled Funds Unsettled Funds How do I cover my trades? ![]()
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