Tired of those pesky "Good Faith Violation" warnings popping up on your Webull account? You're not alone! Many new traders, and even some experienced ones, fall victim to this common issue. But fear not, because by the end of this lengthy, step-by-step guide, you'll be a GFV-avoidance master. Let's dive in and make sure your trading journey on Webull is as smooth as possible.
How to Not Get a GFV on Webull: Your Ultimate Guide to Smooth Trading
A Good Faith Violation (GFV) can be a real buzzkill, limiting your trading activity and even restricting your account. In essence, it occurs in a cash account when you use funds that haven't "settled" from a previous sale to buy a new security, and then you sell that new security before the initial funds have settled. It's like using a borrowed dollar to buy something, then selling that something before you've actually paid back the borrowed dollar. Confusing, right? Let's break it down.
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| How To Not Get Gfv On Webull |
Step 1: Understand What a GFV Truly Is (And Why Webull Cares)
Ready to tackle this beast? Before we can avoid something, we need to understand it inside and out. So, let's get down to the nitty-gritty of what a GFV means for you on Webull.
A Good Faith Violation (GFV) is a regulatory violation that happens specifically in a cash account. It's all about settled funds. When you sell a stock, the money from that sale isn't immediately available for new purchases. It takes time for the trade to "settle." As of May 28, 2024, the standard settlement period for US equities, ETFs, and options is T+1, meaning Trade Date plus one business day.
Here's the critical scenario that causes a GFV:
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You have a cash account.
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You sell a stock (let's call it Stock A). The proceeds from this sale are unsettled.
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Before the funds from selling Stock A have settled (i.e., before T+1 passes), you use those unsettled funds to buy another stock (Stock B).
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Then, before the initial funds from Stock A's sale have settled and before Stock B's purchase has settled, you sell Stock B.
This is where the violation occurs. You've essentially bought and sold something with money that wasn't fully "yours" yet in the eyes of the regulations.
Why does Webull care? Brokerages like Webull are regulated by organizations like FINRA (Financial Industry Regulatory Authority) and the SEC (U.S. Securities and Exchange Commission). These rules are in place to ensure fair and orderly markets and to prevent practices like "free riding," where investors essentially get a free loan from the brokerage.
Step 2: Master the Concept of "Settled Funds" and "Buying Power"
This is perhaps the most crucial step in GFV avoidance. Many traders confuse "cash available to trade" with "settled funds."
Understanding Settled Funds:
Settled funds are the proceeds from a sale of securities that have fully cleared. Once funds settle, they are truly yours to use for any new purchases without GFV risk. For most US stock trades on Webull, this means waiting one business day (T+1) after your sale. So, if you sell a stock on Monday, the funds will typically settle on Tuesday.
Differentiating from Buying Power:
Your "buying power" on Webull might look larger than your settled cash. This is because Webull often grants you instant buying power for new deposits or even proceeds from unsettled sales. While this instant buying power allows you to open new positions, it doesn't mean the underlying funds are settled. Using instant buying power from unsettled sales to buy a new stock and then selling that new stock before the original funds settle is the classic GFV trap.
QuickTip: Scan quickly, then go deeper where needed.
Step 3: Choose Your Account Type Wisely: Cash vs. Margin
The type of account you have on Webull significantly impacts your GFV risk.
Sub-heading: Trading with a Cash Account (High GFV Risk)
If you operate with a cash account on Webull, you are highly susceptible to GFVs. In a cash account, you can only trade with the cash you have deposited or the proceeds from settled sales. The moment you use unsettled funds to buy something new and then sell it before settlement, you've incurred a GFV.
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Pros of a Cash Account:
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No margin interest.
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Simpler to understand for beginners.
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Cannot incur margin calls.
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Cons of a Cash Account:
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High GFV risk.
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Limited to settled funds for subsequent trades.
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Cannot day trade freely (unless you have a large cash balance that settles instantly).
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Sub-heading: Considering a Margin Account (Lower GFV Risk, but New Rules Apply)
A margin account on Webull generally offers more flexibility regarding settlement. With a margin account, you are borrowing money from Webull to trade. This allows you to use funds from sales immediately for new purchases without waiting for settlement, effectively eliminating GFV risk related to unsettled sales.
However, margin accounts come with their own set of rules, most notably the Pattern Day Trader (PDT) rule.
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Pros of a Margin Account:
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No GFV risk from unsettled sales.
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Increased buying power through leverage (up to 4x for day trades, 2x overnight on Webull, with a minimum equity of $2,000).
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Ability to short sell.
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Cons of a Margin Account:
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Subject to interest on borrowed funds.
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Risk of margin calls if your account equity falls too low.
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Subject to the PDT rule: If you execute four or more day trades within a five-business-day rolling period with less than $25,000 in equity, your account will be flagged as a Pattern Day Trader, restricting your day trading activity.
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Recommendation: If you plan on actively trading (especially day trading), a margin account is often preferred to avoid GFVs. However, be sure to understand and manage the PDT rule if your account balance is below $25,000.
Step 4: Implement the "Wait and See" Strategy
This is the simplest and most effective way to avoid GFVs in a cash account.
Sub-heading: The T+1 Settlement Rule in Practice
Always wait for your funds to settle before using them for a new purchase if you intend to sell that new purchase quickly. Remember, it's generally T+1 for US stocks, ETFs, and options.
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Example:
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On Monday, you sell $500 worth of XYZ stock.
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The $500 from this sale will settle on Tuesday.
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Do not use that $500 to buy ABC stock on Monday if you plan to sell ABC stock on Tuesday or even later on Monday.
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Wait until Tuesday, when the $500 from your XYZ sale has settled. Then you can use it to buy ABC stock, and you can sell ABC stock whenever you like without incurring a GFV (assuming you have enough settled funds to cover the purchase of ABC initially).
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Sub-heading: Plan Your Trades to Avoid Overlaps
Impulsive trading is a common GFV trigger. Before you hit that "buy" or "sell" button, take a moment to consider the settlement times.
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If you have limited settled cash and you've just sold a position, resist the urge to immediately jump into another trade with those unsettled proceeds.
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Consider making a "shopping list" of potential trades and execute them only when you have sufficient settled funds available.
QuickTip: Repetition signals what matters most.
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Step 5: Fund Your Account Adequately and Proactively
The more settled cash you have in your Webull account, the less likely you are to run into GFV issues.
Sub-heading: Keep a Healthy Cash Buffer
Think of it as your GFV shield. Having more cash than you immediately need for a trade provides a buffer against using unsettled funds. If you have $1,000 in settled cash and you sell a stock for $500 (unsettled), you still have that $1,000 settled cash available for new purchases.
Sub-heading: Understand Deposit Settlement Times
Even new deposits can take time to settle.
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ACH Deposits: Typically take 3-5 business days to fully clear and become settled funds on Webull. While you might get instant buying power, remember that it's not settled cash.
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Wire Transfers: Generally settle much faster, often within 1 business day. If you need funds quickly and settled, a wire transfer is usually the best option.
Pro tip: If you plan to trade frequently, especially with a cash account, make larger, less frequent deposits rather than many small ones. This minimizes the impact of deposit settlement times.
Step 6: Monitor Your Account Closely on Webull
Webull provides tools to help you track your funds.
Sub-heading: Check Your "Cash Available to Withdraw"
This is often a good indicator of your settled funds. While "Cash Available to Trade" might include unsettled funds or instant buying power, "Cash Available to Withdraw" usually reflects your fully settled balance. Always verify this number before initiating a new trade if you are concerned about GFVs.
Sub-heading: Pay Attention to Webull's Warnings
Webull often provides pop-up warnings or notifications if a trade you are about to make could potentially result in a GFV. Do NOT ignore these warnings! They are there to protect you. Take a moment to understand why the warning is appearing before proceeding.
Step 7: Utilize the Day Trade Counter (If Applicable)
QuickTip: Reflect before moving to the next part.
While primarily related to PDT rules, understanding your day trade counter can help you be mindful of your trading frequency, which indirectly reduces GFV risk in cash accounts. If you're constantly in and out of positions, you're more likely to run into GFV issues if you're not careful about settlement.
Step 8: Consider Your Trading Strategy
Your approach to trading can significantly impact your susceptibility to GFVs.
Sub-heading: Swing Trading vs. Day Trading
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Swing Trading: Holding positions for several days or weeks naturally allows funds to settle, making GFVs less likely. This strategy is generally more forgiving for cash account holders.
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Day Trading: Buying and selling the same security within the same trading day. This is where GFVs commonly occur in cash accounts if you're using unsettled funds. If you truly want to day trade, a margin account with sufficient capital ($25,000+ to avoid PDT restrictions) is almost a necessity.
Sub-heading: Avoid "Recycling" Unsettled Funds
This is the core behavior that causes GFVs. Never assume funds from a recent sale are immediately available for another quick buy-and-sell cycle. Always operate under the assumption that funds need to settle.
By diligently following these steps, you can navigate your Webull trading experience with confidence and effectively avoid those frustrating Good Faith Violations. Remember, patience and understanding of settlement rules are your best allies in this journey. Happy trading!
10 Related FAQ Questions:
How to check my settled funds on Webull?
You can typically find your "Cash Available to Withdraw" or similar metrics within your Webull account's "Assets" or "Account" section. This usually reflects your settled cash.
How to avoid a GFV if I accidentally bought with unsettled funds?
If you realize you've bought a stock with unsettled funds, do not sell that stock until the original funds used for its purchase have fully settled. If you sell it before then, you will incur a GFV.
How to clear a GFV on Webull?
Tip: Compare what you read here with other sources.
GFVs don't necessarily "clear" in the sense that you do something to remove them immediately. They remain on your record for a rolling 12-month period. The key is to avoid accumulating too many (typically 3 in 12 months will result in a 90-day restriction). The best way to "clear" the impact is to ensure all future trades are made with settled funds.
How to get more buying power without margin on Webull?
The only way to get more buying power in a cash account without margin is to deposit more settled funds into your account. ACH deposits can take 3-5 business days to fully settle, while wire transfers are faster (often 1 business day).
How to upgrade my Webull account to a margin account?
You can typically apply to convert your Webull cash account to a margin account through the Webull app or website. There are specific eligibility requirements, including a minimum equity of $2,000 for a margin account. The conversion process usually takes a couple of business days.
How to reset a Pattern Day Trader (PDT) flag on Webull?
If you are flagged as a PDT with less than $25,000 equity in a margin account, Webull allows for a one-time PDT reset for the life of the account. This option can usually be found within your account's risk monitoring or settings section. Alternatively, depositing funds to bring your account equity above $25,000 by the end of the trading day will also remove the PDT restriction.
How to know when my funds will settle on Webull?
For US stocks, ETFs, and options, the standard settlement period is T+1. So, if you sell on Monday, your funds typically settle on Tuesday. Webull's trade confirmations or account statements should also provide settlement dates.
How to avoid GFV for options trading on Webull?
The rules for options trading settlement are generally the same as stocks (T+1). To avoid GFVs, ensure you are using settled funds to purchase options, and if you sell options, wait for the proceeds to settle before using them for a new purchase and subsequent quick sale.
How to tell the difference between "cash available to trade" and "cash available to withdraw" on Webull?
"Cash available to trade" may include unsettled funds or instant buying power from recent deposits. "Cash available to withdraw" typically represents your fully settled cash balance that you can withdraw or use for unrestricted new purchases. Always prioritize "cash available to withdraw" for GFV-safe trading.
How to manage multiple GFVs on Webull?
If you incur 3 good faith violations in a rolling 12-month period in a cash account, Webull will restrict your account. This means you will only be able to buy securities if you have sufficient settled cash in the account prior to placing a trade, and this restriction typically lasts for 90 days. The best management is proactive avoidance of future GFVs.
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