What is a Good Faith Violation (GFV)?
If you purchase a security and sell it before paying (for the purchase) with settled funds, it results in a Good Faith Violation (GFV).
Accounts with 3 GFVs within a 12-month period will be restricted to being able to purchase securities only with settled funds for a period of 90 days.
Settled vs Unsettled Funds
Settled Funds are the amount that has been settled in your account and can be used to trade or can be withdrawn.
Unsettled Funds are the proceeds to be received from a sell trade.A GFV is referred to as so, as the sell trade gives the appearance that the sales proceeds are being used to cover the buy order when in reality there are insufficient settled funds to cover the purchase.
For example, Ms. Keerthy has a Stockal account with $1,500 settled funds.
- On Monday, she purchases shares of Netflix for $1,500 and sells the same for $1,600. Funds from the sale will be settled on Wednesday (T+2). This is not a GFV as her account is fully funded to pay for the purchase.
- She also purchases shares of Uber for $1,600 on Monday. She sells these shares on Tuesday, which results in a GFV as she has sold the shares with unsettled funds.
* Buying a stock with unsettled funds is not a violation. But selling shares before the purchase has been cash settled will result in violation.
* Violations can be avoided by selling shares purchased with unsettled funds after the funds have been settled.
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