Have you ever been confused by those pesky Good Faith Violations (GFVs) while trading on Webull? You're not alone! Many new (and even experienced) traders find themselves scratching their heads when a GFV pops up. But fear not, by the end of this lengthy guide, you'll be a GFV guru, navigating Webull's cash account rules with confidence.
Let's dive in and unravel the mysteries of Good Faith Violations, understand why they occur, and most importantly, how many Webull allows before imposing restrictions.
The Good Faith Violation: A Core Concept for Cash Accounts
Before we talk about numbers, let's nail down what a Good Faith Violation actually is. This is crucial for understanding why it matters.
What Exactly is a Good Faith Violation (GFV)?
In simple terms, a GFV occurs in a cash account when you:
Buy a security (like a stock or ETF) using unsettled funds. These are funds that haven't fully cleared from a previous sale. Think of it like this: you sold Stock A, and the money from that sale is on its way to your account, but it hasn't officially arrived yet.
Then, you sell the new security (the one you bought with the unsettled funds) before the original funds (from the sale of Stock A) have settled.
It's essentially using money that isn't fully "yours" yet to make a purchase, and then selling that purchase before the original transaction completes. The broker extends you "good faith" by allowing you to use those unsettled funds, but that good faith is violated if you don't wait for the original funds to settle before selling what you bought with them.
Understanding the T+1 Settlement Rule
The concept of "settled funds" is central to GFVs. In the US, most stock, ETF, and options trades operate on a T+1 settlement period. This means:
T = Trade Date (the day you execute the buy or sell order)
+1 = One business day after the trade date.
So, if you sell a stock on Monday (Trade Date), the funds from that sale will settle on Tuesday. You can see the proceeds in your account almost immediately, and Webull often provides "instant buying power" with these unsettled funds, which is a great convenience. However, the key is that these funds aren't officially settled until T+1.
Example:
Monday: You have $0 settled cash. You sell 100 shares of Stock A for $1,000.
Monday (later): You use the $1,000 (unsettled proceeds from Stock A) to buy 50 shares of Stock B.
Tuesday: The $1,000 from the sale of Stock A settles.
If you sell Stock B on Monday (before the Stock A proceeds settle on Tuesday), you commit a GFV. This is because you sold Stock B before the funds you used to buy it were officially settled.
Step 1: Discovering Webull's Good Faith Violation Limit – Are You There Yet?
Alright, let's get to the nitty-gritty: how many good faith violations does Webull allow? This is where understanding the rules is critical to avoiding account restrictions.
Webull, like most brokerages, adheres to FINRA (Financial Industry Regulatory Authority) regulations regarding Good Faith Violations. These regulations are designed to prevent "freeriding," where an investor buys and sells securities without actually paying for them.
The Rolling 12-Month Period
It's important to know that GFVs are tracked over a rolling 12-month period. This means that a GFV will eventually "fall off" your record 13 months after its trade date.
The GFV Tiers and Their Consequences on Webull
Webull's policy generally follows the industry standard, which involves escalating restrictions based on the number of GFVs you accumulate within that rolling 12-month period. Here's a breakdown:
First Violation: You'll typically receive a warning notification. This is like a friendly reminder to be more mindful of settlement periods. No immediate restrictions are usually placed on your account.
Second Violation: Another warning. Still no immediate severe restrictions, but you're getting closer to trouble.
Third Violation: This is where things start to get restrictive. Upon your third GFV within a rolling 12-month period, your cash account will likely be restricted to trading with settled funds only. This means you cannot use unsettled proceeds to buy new securities. You'll have to wait until the funds from any sale fully settle before you can use them for new purchases. This restriction typically lasts for 90 days or until the earliest GFV within the 12-month period expires, whichever is longer.
Fourth Violation: If you incur a fourth GFV within that 12-month period while already under restriction (or quickly after it lifts), your account will face even more severe limitations. While the exact phrasing can vary by broker, it often means an extended period of "settled funds only" trading, possibly for the remainder of the 12-month period from your first GFV.
Fifth Violation: This is the most severe penalty. A fifth GFV within a rolling 12-month period will typically result in your account being restricted to closing-only transactions for 90 days. This means you can only sell existing positions; you cannot open any new ones. In some cases, repeated and egregious violations could even lead to account closure.
It's crucial to understand: Webull provides "instant buying power" for cash accounts, which allows you to trade with unsettled funds. While this is convenient, it's also where GFVs come into play. The system extends you credit in "good faith," assuming you will let the original funds settle. If you don't, you violate that good faith.
Step 2: Unpacking the "Why" – How GFVs Happen
Now that you know the consequences, let's look at the scenarios that commonly lead to a Good Faith Violation. Understanding these scenarios is key to avoiding them.
Common Scenarios Leading to a GFV:
The Quick Flip with Unsettled Funds: This is the most classic GFV scenario.
You sell Stock X on Monday. The money is unsettled.
You immediately use those unsettled funds to buy Stock Y on Monday.
You then sell Stock Y on Tuesday (before the funds from Stock X settled).
Result: GFV. You sold Stock Y, which you purchased with money that wasn't yet "officially" yours.
Selling Part of a Position Purchased with Mixed Funds:
You have $500 settled cash and $500 unsettled cash from a recent sale.
You buy $1,000 worth of Stock Z.
You then sell $200 worth of Stock Z before your original $500 unsettled cash settles.
Result: GFV. Even if some of the purchase was with settled funds, selling a portion that was covered by unsettled funds before they settle can trigger a violation. The system assumes a "First-In, First-Out" (FIFO) accounting for funds, or it may prorate.
Banking Holidays and Settlement: Be aware that banking holidays can affect settlement dates. If a holiday falls between your trade date and the expected settlement date, it will push the settlement back by an extra day. This can inadvertently lead to a GFV if you're not careful.
Important Distinction: Cash vs. Margin Accounts
It's vital to differentiate between cash accounts and margin accounts.
Good Faith Violations only apply to cash accounts.
In a margin account, using unsettled funds to trade and then selling before settlement is generally considered a "day trade" and falls under Pattern Day Trader (PDT) rules, not GFV rules. Margin accounts allow you to borrow money from the broker, so the rules for using funds are different.
Step 3: Your Step-by-Step Guide to Avoiding Good Faith Violations on Webull
Prevention is always better than cure! By following these steps, you can significantly reduce your chances of incurring a GFV on your Webull cash account.
Sub-heading 3.1: Mastering the Art of Settlement
The single most important concept to grasp is settlement.
Always know your settlement dates: For most securities, it's T+1. This means if you sell on Monday, the funds are settled and truly available for new purchases that you intend to sell quickly on Tuesday.
Track your settled vs. unsettled funds: Webull's platform provides a clear breakdown of your available funds, distinguishing between settled cash and instant buying power (which includes unsettled funds). Pay close attention to these numbers!
Sub-heading 3.2: Strategic Trading for GFV Prevention
Adopt these trading habits to steer clear of violations:
Wait for funds to settle before re-investing in a position you might sell quickly. If you sell a stock and plan to use those proceeds to buy another stock that you might also sell in the very short term, ensure the initial sale has settled first.
Use settled cash for new purchases if possible. If you have enough settled cash in your account, prioritize using that for any new trades, especially if you anticipate a quick turnaround.
Consider your trading style. If you frequently buy and sell within a day or two (i.e., day trade), a cash account might not be the most suitable for you if you're consistently running into GFVs. This leads to our next point...
Sub-heading 3.3: When a Margin Account Might Be Right for You
If you find yourself constantly bumping up against GFV rules because of your active trading style, it might be time to consider a margin account.
Margin Accounts and Day Trading: Margin accounts allow for more flexible trading, including day trading, without triggering GFVs. Instead, they operate under Pattern Day Trader (PDT) rules. If you make four or more day trades within five business days and your account equity is below $25,000, you'll be flagged as a PDT. This comes with its own set of rules and risks, but it generally eliminates GFVs.
Understand the Risks of Margin: While margin offers flexibility and leverage, it also comes with increased risks, including the potential to lose more than your initial investment. Always thoroughly understand margin rules and risks before opening a margin account.
Step 4: What to Do If You Get a Good Faith Violation on Webull
Don't panic! A single GFV isn't the end of the world.
Sub-heading 4.1: Review the Notification Carefully
When you receive a GFV notification from Webull, read it thoroughly. It will explain which trade caused the violation and why. This is a learning opportunity.
Sub-heading 4.2: Adjust Your Trading Habits
The most important step is to learn from the violation and adjust your trading behavior. For a cash account, this means becoming more diligent about waiting for funds to settle before making new purchases, especially if you plan to sell those new purchases quickly.
Sub-heading 4.3: Understand the Restrictions (If Any)
If you reach the threshold for restrictions (e.g., settled funds only), understand exactly what those restrictions entail and how long they will last. Plan your trades accordingly.
FAQs: How to Avoid Good Faith Violations on Webull
Here are 10 common "How to" questions about Good Faith Violations and their quick answers to help you stay compliant on Webull:
How to know if my funds are settled on Webull?
Check your account balance on the Webull app or desktop platform. It usually distinguishes between "Cash Balance" (settled funds) and "Buying Power" (which may include unsettled funds or margin). Always refer to the "Cash Balance" for settled funds.
How to avoid a Good Faith Violation when selling a stock quickly on Webull?
Ensure the funds you used to purchase that stock were already settled before you bought it. If you bought it with unsettled funds, you must hold it until those original funds settle before selling it, or you'll get a GFV.
How to make sure I'm only using settled funds on Webull?
Wait for the T+1 settlement period for any proceeds from sales or deposits to fully clear before making new purchases. Only trade with funds explicitly labeled as "Cash Balance" or "Settled Cash."
How to understand the T+1 settlement rule better for Webull?
It means trade date plus one business day. If you buy/sell on Monday, the funds settle on Tuesday. If you buy/sell on Friday, the funds settle on Monday (assuming no holidays).
How to recover from a Good Faith Violation on Webull?
The violation will remain on your record for a rolling 12-month period. There's no specific "recovery" action, just a need to be careful with future trades to avoid further violations and potential restrictions.
How to check my GFV history on Webull?
Webull typically provides notifications within the app or via email when a GFV occurs. You can also contact Webull customer service to inquire about your GFV count.
How to avoid GFV if I day trade on Webull?
For active day traders, a margin account is generally recommended, as GFVs only apply to cash accounts. Be aware of Pattern Day Trader (PDT) rules in a margin account. If you stick to a cash account, ensure you have sufficient settled cash to cover all your purchases and sales within the same day without relying on unsettled funds.
How to prevent a GFV after a large sale on Webull?
If you make a large sale, resist the urge to immediately reinvest all the proceeds into a new stock that you might also sell quickly. Wait for those funds to settle (T+1).
How to deal with a "settled funds only" restriction on Webull?
During this restriction, you can only buy securities if you have enough settled cash in your account before placing the trade. You cannot use any "instant buying power" from unsettled funds. The restriction will last for a specific period (often 90 days or longer).
How to upgrade my Webull account to avoid GFV issues?
You can apply to convert your cash account to a margin account. This will allow you to day trade without GFV concerns, but it introduces margin-specific rules and risks. Research margin trading thoroughly before converting.