Using unsettled cash to buy securities on Interactive Brokers

External question — Personal Finance Stack Exchange Author: Paul Razvan Berg Original post: https://money.stackexchange.com/questions/122011 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. From Interactive Broker's Availability of proceeds in a 'Cash' type account article: Account holders who wish to have access to settled funds prior to the settlement day may do so by electing an account type of 'Margin'. Under this account type unsettled funds may be used for trading purposes but may not be withdrawn until settlement. How would this work? Is it a loan on which I have to pay interest for two business days until the first trade is settled, or just because the account is of margin type, I am entitled to use the funds faster than the usual settlement time?

External answer — Personal Finance Stack Exchange Author: Stefano S. Original post: https://money.stackexchange.com/a/169900 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Short answer: no loan, and no separate interest just for using unsettled cash — it works because a margin account's buying power is calculated off total account equity, not off which specific dollars have technically cleared. A cash account restricts you to settled funds; trading with unsettled proceeds there trips Reg T's good-faith-violation rules (IBKR's "free-riding" language). A margin account is explicitly exempt from that restriction — you're being extended buying power against your equity, the same mechanism that lets you buy more than your literal cash balance generally. It isn't billed as a loan on that specific trade, and margin interest only accrues if your actual cash balance goes negative — using unsettled funds within existing equity doesn't create a debit by itself. One correction worth flagging since this was asked in 2020: US equity settlement moved from T+2 to T+1 in May 2024, so the window is now one business day, not two. The underlying mechanism — equity-based buying power vs. settlement-based cash restriction — didn't change with the shorter cycle; it's a separate rule from Reg T entirely. Source: IBKR's own "Availability of proceeds in a Cash account" documentation, plus the standard Reg T / FINRA good-faith-violation framework that governs cash accounts specifically.