Trading can be an exhilarating journey, but navigating the rules is crucial, especially when it comes to things like "Good Faith Violations" (GFVs) on platforms like Webull. Ever wonder how many of these you can incur before your trading freedom takes a hit? Well, you're in the right place! This comprehensive guide will break down everything you need to know about GFVs on Webull, from what they are to how to avoid them and what happens if you get too many. Let's dive in!
Understanding Good Faith Violations on Webull: A Step-by-Step Guide
Step 1: What Exactly is a Good Faith Violation (GFV)? Let's Clear the Air!
Have you ever sold a stock and then immediately wanted to use that cash to buy another? It feels intuitive, right? But here's where the concept of "settlement" comes in, and it's key to understanding GFVs.
A Good Faith Violation (GFV) primarily occurs in a cash account on Webull when you:
Buy a stock or option using funds that haven't "settled" yet (i.e., proceeds from a previous sale).
Then, you sell that newly purchased stock or option before the original funds used for the purchase have fully settled.
Think of it like this: Imagine you lend your friend $100 today, and they promise to pay you back tomorrow. Before they've paid you back, you "spend" that $100 on something else, and then try to sell that new item before your friend has even returned your initial $100. That's essentially what a GFV is in the world of trading.
Why does this happen? Securities transactions aren't instantaneous. There's a "settlement period" where the ownership of the security and the transfer of funds are finalized. For most stocks, ETFs, and options, this is generally T+1 (Trade Date plus one business day). This means if you sell a stock on Monday, the funds from that sale don't officially "settle" and become available for new purchases until Tuesday.
Step 2: Identifying the Culprit: How GFVs Happen in Practice
Let's walk through a common scenario to illustrate how a GFV can occur on Webull:
Sub-heading 2.1: The Classic GFV Scenario
Monday Morning: You have $0 in settled cash in your Webull cash account.
Monday Morning (Later): You sell Stock A for $1,000. These $1,000 are unsettled proceeds. They will settle on Tuesday (T+1).
Monday Afternoon: You immediately use the unsettled $1,000 from selling Stock A to buy Stock B.
Monday Afternoon (Even Later): You decide to sell Stock B.
BAM! You've just incurred a Good Faith Violation. Why? Because you sold Stock B before the $1,000 from the sale of Stock A had officially settled. You effectively "borrowed" from future settled funds and then prematurely exited the position.
Sub-heading 2.2: The Role of Instant Buying Power
Webull, like many brokers, often provides "instant buying power" for uninitiated funds. This is a courtesy to allow you to trade quickly. However, it's crucial to remember that this "instant" access doesn't bypass the underlying settlement rules. Using this instant buying power and then selling before settlement is the core cause of GFVs.
Step 3: The Nitty-Gritty: How Many Good Faith Violations Can You Have on Webull?
This is the question everyone wants answered! The good news is, you're not immediately shut down for one mistake. Webull, adhering to regulatory guidelines, has a tiered system for GFV accumulation. These violations are tracked on a rolling 12-month period.
Sub-heading 3.1: The GFV Tiers and Their Consequences
Here's a breakdown of the typical GFV limits and their associated restrictions:
GFV 1-3 (within a rolling 12-month period): You'll likely receive warnings for each of these. While inconvenient, they generally don't immediately restrict your account. It's a signal to be more mindful of your trading practices and settlement times. Think of these as "yellow cards."
GFV 4 (within a rolling 12-month period): This is where things get more serious. Upon your fourth GFV, your Webull cash account will typically be restricted to buying with settled funds only. This means you can only place buy orders if you have sufficient settled cash in your account before placing the trade. This restriction will usually last for 12 months from the earliest GFV received within that 12-month period, or a minimum of 90 days, even if a previous GFV expires sooner. This is a "red card" for reckless trading.
GFV 5 (within a rolling 12-month period): Reaching five Good Faith Violations is the most severe consequence. Your account will be restricted to "sell only" for 90 days. This is a significant limitation, as you won't be able to open any new positions during this period. You can only close existing ones. If the account is reopened after this 90-day restriction and another GFV occurs, it may revert to closing-only again.
Important Note: Each GFV automatically expires after 13 months from its trade date. So, violations don't stay on your record forever, but the restrictions can be long-lasting.
Step 4: Becoming a GFV Ninja: Strategies to Avoid Good Faith Violations
Avoiding GFVs on Webull is all about understanding and respecting the settlement process. Here are some actionable steps you can take:
Sub-heading 4.1: Master the Settlement Cycle (T+1)
Always be aware of T+1 settlement. If you sell a security today (Monday), the funds will settle tomorrow (Tuesday). You cannot use those proceeds to buy and sell another security on the same day without risking a GFV.
Plan your trades. If you intend to use proceeds from a sale for a new purchase, factor in the T+1 settlement period.
Sub-heading 4.2: The "Settled Cash Only" Discipline
Wait for funds to settle. The simplest and most effective way to avoid GFVs is to only use settled cash for new purchases. Check your "Settled Cash" balance on Webull before making any new buy orders, especially after recent sales.
Fund your account generously. Having a healthy amount of settled cash in your account provides a buffer and reduces the likelihood of inadvertently using unsettled funds.
Sub-heading 4.3: Strategic Trading Practices
Avoid "round-trip" trades with unsettled funds. A round-trip trade is buying and selling a security, or selling and buying a security. If you initiate a buy with unsettled funds, don't sell that position until the original funds have settled.
Consider a Margin Account (with caution!). Margin accounts generally allow immediate access to sales proceeds for reinvestment, helping to avoid GFVs. However, margin accounts come with their own set of rules (like Pattern Day Trader rules and margin calls) and significantly increased risk. This is not a recommendation for beginners. Understand the risks thoroughly before considering a margin account.
Utilize Webull's cash management features. Some brokers offer features that earn interest on uninvested cash. Keeping funds in such accounts ensures they are settled and readily available.
Sub-heading 4.4: Keep an Eye on Your Account Activity
Regularly review your transaction history. This can help you identify any potential GFV triggers and adjust your trading habits.
Pay attention to Webull's notifications. Webull will usually notify you if you've incurred a GFV or are at risk of doing so. Don't ignore these alerts!
Step 5: What Happens if You Get Restricted? And How to Deal With It
In the unfortunate event that your account is restricted due to GFVs, it's not the end of the world, but it does require patience and a shift in strategy.
Sub-heading 5.1: Navigating a "Settled Funds Only" Restriction
Patience is key. The restriction is typically for a set period (often 12 months from the first GFV). You'll simply need to wait for your funds to settle before making any new purchases.
Focus on long-term holds. This restriction can force you to become a more patient investor, which isn't always a bad thing!
Fund your account with fresh cash. If you want to continue trading actively, depositing new, settled funds is your best bet.
Sub-heading 5.2: Surviving a "Sell Only" Restriction
Manage existing positions. During a "sell only" restriction, your primary focus will be on managing any open positions you currently hold. You can sell them, but you can't open new ones.
Re-evaluate your trading strategy. This is a good time to reflect on why you incurred so many GFVs and adjust your approach to avoid future issues.
Contact Webull support (if needed). While the restrictions are generally firm due to regulatory requirements, if you have questions or believe there's an error, reach out to Webull's customer support.
10 Related FAQ Questions
How to avoid Good Faith Violations on Webull?
The best way to avoid GFVs is to always wait for funds from a sale to settle (typically T+1) before using them for a new purchase, or to only trade with funds that are already settled in your account.
How to check my settled funds on Webull?
You can typically find your settled cash balance within your Webull account summary or portfolio details. Look for a line item specifically indicating "Settled Cash" or "Cash Available for Withdrawal."
How to know if I have a Good Faith Violation on Webull?
Webull will usually notify you via email or in-app notifications if you incur a Good Faith Violation. You can also check your account activity or history for any warnings or restrictions.
How to clear a Good Faith Violation on Webull?
Individual GFVs cannot be "cleared" before their 13-month expiration period. The way to "clear" the impact is to wait for the restriction period to end and ensure you do not incur further violations.
How to prevent my Webull account from being restricted?
To prevent restrictions, consistently avoid using unsettled funds to buy securities and then selling them before the original funds have settled. Stay mindful of the T+1 settlement cycle.
How to differentiate between a cash account and a margin account on Webull regarding GFVs?
Good Faith Violations primarily apply to cash accounts. Margin accounts typically have immediate access to sales proceeds for reinvestment, thus avoiding GFVs, but they are subject to other rules like Pattern Day Trading and margin calls.
How to understand the T+1 settlement period on Webull?
T+1 settlement means that funds from a sale (or the security from a purchase) become officially settled and available for new, unrestricted use one business day after the trade execution date.
How to use instant buying power on Webull without getting a GFV?
You can use instant buying power, but do not sell the purchased security before the funds you used for that purchase have fully settled. If you hold the position past the settlement date, you won't incur a GFV.
How to remove the "settled funds only" restriction on Webull?
This restriction is typically lifted automatically after the specified period (e.g., 12 months from the earliest GFV that triggered the restriction, or a minimum of 90 days), provided you don't incur more GFVs.
How to contact Webull support for GFV inquiries?
You can usually contact Webull customer support through their in-app chat, email, or a dedicated support phone number. Check the "Help" or "Contact Us" section of the Webull app or website.
