Free Riding Violations happen when you buy a stock, then sell it again before it settles in order to cover the cost of buying it in the first place.
Here’s an example:
Let’s say that you have $0 of settled funds in your account.
On Monday, you buy Stock A for $100.
On Tuesday, you still don’t have $100 of settled funds, so you sell Stock A for $150.
Why is this bad?
This is a problem because you bought Stock A without actually having enough settled funds to complete the purchase. This means that you should not have been able to buy it, and therefore should not have been able to make money on it.
What happens if I mess up?
If you get more than 3 Free Riding Violations within a 12 month period, your Public account will be restricted for 90 days. Remember, this is a “Safe Mode” where you’ll only be able to sell stock, or purchase stock with fully settled funds.
How do I avoid this?
The easiest way to avoid a Free Riding Violation is to make sure you’re always purchasing stock with fully settled funds. Noticing a theme?
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 firstname.lastname@example.org! 😁