A Good Faith Violation occurs when:

1. Liquidating a position before it was ever paid for with settled funds; and

2. there was no effort to deposit additional cash to cover the transactions prior to the settlement date.

3. If you incur 3 Good Faith 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.

Examples:

1. If you purchased 100 shares of a security on Wednesday for $1,000, you would need to have $1,000 cash in your account to pay for the trade on settlement date. The typical settlement time for most securities is the trade date plus 2 trading days (T+2). If you place a trade on Tuesday, the settlement date would be Thursday.
2. If you have $0 available in cash to trade with and on Tuesday, you sell ABC stock for $5,000 and the later that day, you purchase stock in DEF for $5,000. If you sell DEF stock prior to its settlement date on Thursday, this will be a Good Faith Violation, as DEF stock was sold before the account had the cash available to pay for the purchase of DEF.

Help us prevent a Good Faith Violation. dub appreciates your efforts!