Good faith violations: I need to remember the rule before I work on investing again

 

Dear Jianmin,

 

We are contacting you because you had a good faith funding violation in your account yesterday.

 

What Is a Good Faith Violation?

 

A good faith violation occurs when you buy a security in a cash account, then sell it before paying for the initial purchase in full with settled funds. (The standard settlement time is two business days after a trade, but this can vary depending on the product traded.)

 

The Federal Reserve Board's Regulation T requires that either a cash account has sufficient settled funds to make a purchase, or TD Ameritrade accepts in good faith that the client will make full cash payment for the security or asset before selling it.

 

In this instance, you purchased FB with unsettled funds. We accepted that purchase in good faith that you would make full cash payment for the security before selling it. However, that security was then sold (the transaction listed below) before the funds from your original purchase had settled, and this caused the good faith violation.

 

Trade Date: 09/09/2020 08:32:18 AM

 

Symbol: FB

 

What Are the Consequences of Good Faith Violations?

 

If you incur three good faith violations in a rolling 12-month period in a cash account, your account will be restricted to settled cash only. That means you will only be able to buy securities if you have enough settled cash in the account before placing a trade. This restriction will be effective for 90 calendar days.

 

Avoiding Future Violations

 

·         The best way to avoid future good faith violations is to avoid trading patterns that would lead to one.  For examples of trading patterns that create cash account violations, please see our article in The Ticker Tape.

 

 

·         Good faith funding does not apply to margin accounts. 

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·         If you do not already have a like-titled margin account* at TD Ameritrade, you can apply to have your account upgraded with margin privileges. To do this, go to Client Services > My Profile > General, then (under "Elections & routing") click "Apply" next to "Margin trading."

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·         If you already have a margin account at TD Ameritrade, you can combine your assets into that margin account. To do this, log in to the account without margin privileges and go to My Account > Deposit & Transfers > Internal Transfer, then select "Transfer now" (to the right of "Transfer between TD Ameritrade Accounts").

 

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