Message:

<p>[QUOTE=&quot;Brett_in_Sacto, post: 2402127, member: 71510&quot;]The markets generally hold dramatic changes for 3 business days.&nbsp; I think a lot of this is because most accounts have a 72 hour &quot;clearing house&quot; process they must go through on funds (ETF&#039;s in this case).</p><p><br /></p><p>The industry term is Free Riding, and it has something to do with floating buy/sell on unsettled funds.</p><p><br /></p><p><a href="https://research.scottrade.com/knowledgecenter/Public/education/Article?docid=4a6477b554ba4533a91ea5835c5aa4e2" target="_blank" class="externalLink ProxyLink" data-proxy-href="https://research.scottrade.com/knowledgecenter/Public/education/Article?docid=4a6477b554ba4533a91ea5835c5aa4e2" rel="nofollow">https://research.scottrade.com/knowledgecenter/Public/education/Article?docid=4a6477b554ba4533a91ea5835c5aa4e2</a></p><p><br /></p><p><b>Example – Free Riding using unsettled funds</b></p><p><br /></p><p>Violating Reg T is sometimes called “free riding” because you&#039;re trading with money that isn&#039;t yours. Let&#039;s look at an equity example:</p><p><br /></p><p>1. You open a new account and deposit $5,000 in cash. All of the funds in your account are settled and you do not have any securities, so your total account money balance is $5,000.</p><p><br /></p><p>2. Day 1, Monday – After depositing the $5,000 mentioned above, you buy shares of Company A at a total cost of $5,000. Your total account money balance is now $0.</p><p><br /></p><p>3. Day 2, Tuesday – You sell your shares of Company A for a total of $5,250. Stock transactions have a settlement date of T+3, meaning the trade date plus three market days. This transaction will settle on Day 5 (Day 2 + 3), or Friday. Your account now has $0 in settled funds, $5,250 in unsettled funds, and a total account money balance of $5,250.</p><p><br /></p><p>4. Day 3, Wednesday – You buy shares of Company B for a total of $5,150. Your account has $0 in settled funds, $100 in unsettled funds and a total account money balance of $100. Even though you bought Company B with unsettled funds, this is not yet a Reg T violation because you have not sold Company B prior to the settlement of your sale of Company A.</p><p><br /></p><p>5. Day 4, Thursday – You sell your shares of Company B for a total of $4,900. This is free riding, a violation of Reg T. The proceeds from the sale of Company A on Tuesday will not settle until Friday. Any purchases made with those funds must be held until the funding transaction, your sale of Company A, has settled.[/QUOTE]</p><p><br /></p>

Your name or email address:

Do you already have an account?

• No, create an account now.
• Yes, my password is:
• Forgot your password?

Stay logged in