A Cash Liquidation Violation occurs when:
1. You buy stocks and cover the cost of that purchase by selling other fully paid stocks after the date of your purchase.
2. This is considered a violation because brokerage industry rules require you to have enough settled cash in your account to cover purchases on the settlement date.
3. If you incur 3 cash liquidation violations in a 12-month period in a cash account, for 90 days your account will be restricted where you will only be able to buy securities if you have sufficient settled cash in the account prior to placing a trade.
1. You have $0 available in cash to trade with. On Tuesday, you buy ABC stock for $5,000. On Wednesday you sell DEF stock for $10,000 to cover the cost of your purchase of ABC stock which will settle on Thursday. This constituted a cash liquidation violation because when your ABC stock purchases settles on Thursday, you will not have the settled funds from your sale of DEF stock to cover the purchase.
Please help us not have a Cash Liquidation Violation. dub appreciates your efforts!