What is Free-Riding, and how can I avoid it?

Free-riding is when a customer purchases securities, then pays for the cost of those securities by selling them.

Regular-way settlement for equity trades is 3 business days. If you try to open and close a position using unsettled funds, you may be required to deposit additional funds (in response to a margin call).

An account with a free-riding violation will be subject to trading restriction and purchasing securities only when sufficient settled cash is in the account at the time of purchase. A free-riding restriction is effective for 90 days.

See also:

What is a Good Faith Violation?
What is margin?
What is Day Trading? What is a Pattern Day Trader?

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