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I use Scottrade and sold my YHOO stock today, and bought LVS with the proceeds. I thought my YHOO stock had cleared because I bought it 3 days ago, but didn't account for today being a holiday. So now I got a message from Scottrade that I did a "free ride". Is this gonna mess up my taxes? Are they going to make me switch to a margin account?
The question is, how did you pay for the Yahoo purchase? Was THAT purchase made with settled funds?
And did you sell LVS?
If you bought Yahoo with already settled funds, then sold it before settlement and bought LVS, but didn't SELL LVS yet, this doesn't sound like a freeride or a good faith violation.
If you sold LVS today, it sounds like at least one good faith violation.
If you had bought Yahoo with unsettled funds, that's a freeride.
If you got a freeride or if you got your third good faith violation, you'll get what's called a 91 restriction, which means your account will be restricted so that it is impossible to get another freeride or good faith violation because you'll ONLY be able to purchase with completely settled core cash. This restriction lasts for 90 days, after which you're back with a clean slate.
You might want to consider applying to convert the account to a margin account if you have at least $5000 in the account. You don't have to BORROW on margin when you have a margin account, but it simplifies the rules for when you can buy and sell something.
Of course, there's the pattern day trade restriction to watch out for in a margin account (don't make more than three round trip same-security day trades within any rolling five day period or you'll be in a more serious violation)...
Thanks for the info. I bought the YHOO with settled funds, and did not sell the LVS. I only have $4000 in the account (assets and cash), and I don't intend to add any more cash until the market reaches some sort of bottom.
I bought the YHOO with settled funds, and did not sell the LVS.
That is not a free ride. Some brokers will give you a warning any time you purchase stocks with unsettled funds, which is just their way of saying "be careful," but it's not an actual free riding violation. I suspect that's what happened here.
Quote:
I only have $4000 in the account (assets and cash), and I don't intend to add any more cash until the market reaches some sort of bottom.
Actually, you only need $2k to open a margin account, if that's what the above is regarding.
That is not a free ride. Some brokers will give you a warning any time you purchase stocks with unsettled funds, which is just their way of saying "be careful," but it's not an actual free riding violation. I suspect that's what happened here.
I agree.
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Originally Posted by LongArm
Actually, you only need $2k to open a margin account, if that's what the above is regarding.
You're right, although many firms will require more than that to be considered for a margin account initially.
i was recently told by citibank that my ira brokerage account has a 90 free ride hold. there were no warnings given to me and i am told that no buy orders can be done online only thru a broker on the phone at normal comission.are there any federal laws or guidelines that say online trades can not be done during this 90 day period or is it citis law or guideline? Thankyou
are there any federal laws or guidelines that say online trades can not be done during this 90 day period or is it citis law or guideline? Thankyou
It's a federal regulation:
Quote:
If an investor buys and sells a security before paying for it, the investor is “freeriding” which is not permitted under the Federal Reserve Board’s Regulation T and may require the investor’s broker to “freeze” the investor’s cash account for 90 days. During this 90-day period, an investor may still purchase securities with the cash account, but the investor must fully pay for any purchase on the date of the trade."
You might want to consider applying to convert the account to a margin account if you have at least $5000 in the account. You don't have to BORROW on margin when you have a margin account, but it simplifies the rules for when you can buy and sell something.
^^
Margin account makes it a lot simpler, won't have to worry about those violations. You never have to use the margin.
That is not a free ride. Some brokers will give you a warning any time you purchase stocks with unsettled funds, which is just their way of saying "be careful," but it's not an actual free riding violation. I suspect that's what happened here.
Actually, you only need $2k to open a margin account, if that's what the above is regarding.
I believe the holiday probably pushed settlement one day making the funds unsettled that was used to make the second purchase probably producing the free riding warning
You need 2k in equity to maintain margin. We call margin loans if your equity falls below 2000.00 no matter what your equity is
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