Free-riding question/First post

[Timdrum]

This is a two-part post:

1. What a great resource this place is! Just browsing through here for a few minutes and I already feel like I've learned a ton.

2. My first question on here... I understand the basic principle of free-riding and how to avoid it, but I've looked far and wide for my particular question and haven't found one yet. Part of my strategy in one of my accounts relies on not using margin (waiting until I feel comfortable with solid $2,000 buffer). That being said I like to trade as often as I can. I don't believe the following scenario would trigger a free-riding violation, but I figured I'd ask before taking the plunge.

I buy T Monday, sell Tuesday. While the Tuesday sale proceeds are still settling from T, I buy UNP with the same funds used from the Tuesday sale, on Thursday. I then sell UNP on Friday. Would I be slapped with the 90-day freeze? Or would it pass?

My gut tells me it would be okay seeing as the second sale (UNP) settles on the same day that the Tuesday (T) sale proceeds settle, therefore freeing the T proceeds to be used for the Thursday buy of UNP...

Anyway, thanks for anything and for the forum!

 

[wackypete2]

I buy T Monday, sell Tuesday. While the Tuesday sale proceeds are still settling from T, I buy UNP with the same funds used from the Tuesday sale, on Thursday. I then sell UNP on Friday. Would I be slapped with the 90-day freeze? Or would it pass?

My gut tells me it would be okay seeing as the second sale (UNP) settles on the same day that the Tuesday (T) sale proceeds settle, therefore freeing the T proceeds to be used for the Thursday buy of UNP...

Anyway, thanks for anything and for the forum!

If you are using a margin account and don't go over your margin limit then you are ok. For cash accounts:

"Stock trades settle 3 business days following the trade date (T+3) and Option trades settle 1 business day following the trade date (T+1). According to this rule, sale proceeds generated by selling stock in a cash account are considered "unsettled" for a period of 3 business days following the trade date. You may re-use the unsettled sale proceeds to purchase another security prior to the settlement date of those funds however, in doing so you are agreeing in good faith to hold the new purchase at least until the funds from the original sale settle."

Peter