A Good Faith Violation happens when you purchase stock, then sell it again before the funds you used to buy it have settled in your Public account.
We know that’s a little confusing, so here’s an example:
Let’s say that on Monday, you sell Stock A for $100.
You immediately use that money to buy $100 worth of Stock B.
On Tuesday, you sell Stock B.
Why is this bad?
This is a problem because you sold Stock B before the funds you used to purchase it in the first place were settled. Funds from selling a stock are reflected in your Public account right away, but remember: until the trade settles in 2 business days, those funds are not settled.
What happens if I mess up?
If you get more than 3 Good Faith Violations within a 12 month period, your Public account will be restricted for 90 days. Think of this as a “Safe Mode” where you’ll only be able to sell stock, or purchase stock with fully settled funds.
BUT. If you get more than 4 Good Faith Violations in a 12 month period, all of your stock might be sold and your Public account will be closed for 90 days. We know this sounds extreme, but this is actually a policy from our Clearing Firm, and there’s absolutely nothing we can do about it. It’s a bummer, so try to avoid it at all cost.
Yikes. How do I avoid this?
Buying and selling stock quickly can easily cross into “Day Trading” territory, which is not allowed in a Cash Account. The easiest way to avoid a Good Faith Violation is to make sure you’re only ever purchasing stock with settled funds.
If you ever have questions, the team is always here for you, so feel free to give us a shout on the app’s Live Chat or via email at email@example.com! 😁