Avoiding Good Faith Violation

External question — Personal Finance Stack Exchange Author: Fred Original post: https://money.stackexchange.com/questions/166604 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I understand the purpose of having enough funds to make stock purchases. But I don't understand when the funds are available for trade after selling stock. It was my understanding: Buy stock A on Monday Sell stock A on Monday afternoon I can use the funds from that sale to buy stock B on Monday, but I can't sell stock B until T+1 Tuesday morning I can sell stock B But selling stock on Tuesday has given me a Good Faith Violation. So I am not understanding something. I know that they say you need the funds to be settled, but even after 4 days the funds never say that they are "settled" For reference I am looking at Fidelity's webpage Can anyone help me understand how to avoid Good Faith Violations?

External answer — Personal Finance Stack Exchange Author: 0xFEE1DEAD Original post: https://money.stackexchange.com/a/166605 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. A good faith violation occurs when you buy a security and sell it before paying for the initial purchase in full with settled funds. Only cash or the sales proceeds of fully paid for securities qualify as "settled funds." Liquidating a position before it was ever paid for with settled funds is considered a "good faith violation" because no good faith effort was made to deposit additional cash into the account prior to settlement date. It's not clear how you paid for the initial position. What were your settled funds prior to buying stock A on Monday? It sounds like your settled funds on Monday were insufficient and you incurred a violation because you sold stock A before additional funds were deposited or prior sales were settled.

External answer — Personal Finance Stack Exchange Author: user384842 Original post: https://money.stackexchange.com/a/167996 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. You sold stock A on Monday. Therefore the cash will be settled by end of the day Tuesday (T+1) You bought stock B on Monday with the unsettled cash from A, and then sold stock B on Tuesday, before the unsettled cash from A had settled (as noted above, A settles at end of the day Tuesday) That constitutes a good faith violation, because you bought AND SOLD another stock using cash from a previous trade that had not yet settled.

External answer — Personal Finance Stack Exchange Author: Fred Original post: https://money.stackexchange.com/a/167997 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. So I finally figured out the issue. This is what caused me to have the violation: Bought stock A on Monday Sold stock A on Monday after hours Bought stock B on Monday after hours Sold stock B on Tuesday morning I did not know that stock bought after hours is seen as being purchased the next day. According to the rules it is as if I had sold stock A, then bought and sold stock B all on Tuesday