Trades placed in a cash account require 2 business days for the funds to fully settle before they can be used again to buy and sell. "Settlement" refers to the official transfer of the securities to the buyer's account and the cash to the seller's account. Usually the trade settlement date is 2 business days after the transaction. That is, if you purchase a security on Monday, the transaction will settle on Wednesday. Review some important cash account trading restrictions below.
Good-faith violations occur when the purchase of a security is subsequently sold using funds that have yet to settle into the account. Each account is allowed to have up to 3 good-faith violations per 12 month rolling period before the account is put into a 90-day restriction on the 4th strike of a violation. During this 90-days restriction period, trading is only allowed when using cash-on-hand (fully-settled) funds. Each good-faith violation will automatically expire after 12 months from the violation date (T/D Date).
Once the account is placed under a 90-day restriction, the account can only use settled funds to place a buy order. The following are some instances when an investor's account will be restricted: