Good Faith Violation Scenario
(Cash account only) Amy starts on Monday with 100 settled shares of XYZ stock, and sells them for $2,000. The proceeds from the sale will settle on Wednesday (T+2), but Amy decides to go ahead and invest the unsettled proceeds in UVW stock, which she buys for $1,000. On Tuesday before the XYZ trade settles (T+1), Amy sells her UVW stock for $1,500.
In this case, Amy created a Good Faith violation by selling her UVW stock prior to the settlement of the XYZ proceeds used to buy it. Learn more about Good Faith Violations.
90-Day Restriction Scenarios
Scenario 1 : An investor day trades using unsettled funds.
Nick had a $1,000 account balance in his cash account on Monday. He then bought $1,000 worth of ABC stock and sold it on the same day. Later that same day, Nick saw the price of ABC drop and decided to buy another $1,000 worth of ABC stock using the unsettled funds he had from selling ABC stock earlier. A 90 day restriction occurs.
Scenario 2 : When an investor sells securities that were not fully paid for by the settlement date.
Jake has $1,000 in cash in his account and he decided to place a market buy order on ABC stock on Monday. The market price inadvertently went up, and the order was executed at a higher price. Jake ended up buying $1,300 worth of ABC stock that was not fully paid for.
Since the trade was made through a cash account where no margin trading is allowed, Jake has to deposit $300 within 5 business days before selling the security. If he sells this position without fully paying for the security, his account will face a 90-Day Restriction.