Understanding GFV (Good Faith Violation) on Webull: A Comprehensive Guide
Have you ever been excited to trade a stock, made a quick sale, and then found your account restricted? If so, you might have encountered a Good Faith Violation (GFV). Don't worry, you're not alone, and this guide will demystify what GFV means on Webull, why it happens, and most importantly, how to avoid it. Let's dive in!
Step 1: Let's Start with a Scenario - Have You Been There?
Imagine this: You see a stock dipping, you buy 100 shares, and almost immediately it jumps up. You think, "Great! I'll sell it now and make a quick profit." So, you sell those 100 shares. Later that day, you see another opportunity, buy a different stock, and then sell that one too, thinking you're just being a savvy trader. Then, bam – a notification from Webull about a "Good Faith Violation." Confusing, right? This scenario is a classic example of how a GFV can occur, and it's all tied to how your trades are settled.
Step 2: What Exactly is a Good Faith Violation (GFV) on Webull?
A Good Faith Violation (GFV) occurs when you buy a security with unsettled funds and then sell that security before the funds used to purchase it have fully settled. In simpler terms, it means you're trying to use money that hasn't officially arrived in your account yet to make a new trade, and then you're selling off the asset purchased with that pending money before the original money has cleared.
Think of it like this: You write a check to pay for something. Until that check clears your bank account, the money isn't truly "available." If you then try to use the money from that same check to buy something else before it clears, and then immediately sell that second item, you've essentially used funds you didn't technically possess yet.
Why does this matter? The U.S. financial market operates on a settlement cycle. Most stock trades settle on a T+2 basis, which means the transaction is finalized two business days after the trade date. So, if you buy a stock on Monday, the cash for that purchase isn't officially debited from your account until Wednesday. Similarly, if you sell a stock on Monday, the cash from that sale isn't officially credited to your account until Wednesday.
Understanding "Unsettled Funds"
Cash from a Deposit: When you deposit money into your Webull account, it takes a few business days for those funds to fully clear and become "settled."
Cash from a Stock Sale: When you sell a stock, the proceeds from that sale are not immediately available for new purchases until two business days later (T+2).
Step 3: How Does a GFV Happen on Webull? (The Mechanics)
Let's break down the process that leads to a GFV:
You Deposit Funds or Sell a Stock: Let's say you deposit $1,000 into your Webull account on Monday. These funds are considered unsettled for the next two business days. Alternatively, you sell Stock A for $1,000 on Monday. The proceeds are also unsettled.
You Buy a New Stock (Stock B) with Unsettled Funds: On Monday or Tuesday, you use that pending $1,000 to buy Stock B.
You Sell Stock B Before Original Funds Settle: Before the original $1,000 deposit or the proceeds from selling Stock A have fully settled (i.e., before Wednesday in our example), you decide to sell Stock B.
This is the critical step! Because the money you used to buy Stock B hadn't officially cleared yet, selling Stock B prematurely triggers the GFV. You essentially used "borrowed" funds (from a pending transaction) to buy an asset and then liquidated that asset before the "borrowed" funds were officially yours.
Step 4: The Consequences of a Good Faith Violation
While a GFV isn't the end of the world, it does come with consequences on Webull:
Account Restrictions: The most common consequence is that your account will be restricted to settled cash only for a period, typically 90 days. This means you will only be able to use funds that have fully settled in your account for new purchases. You won't be able to use unsettled funds from new deposits or recent stock sales.
Loss of Buying Power: During the restriction period, your immediate buying power will be reduced, as you can only trade with truly available cash.
Potential for Account Freezing (Rare but Possible): While less common for a single GFV, repeated violations can lead to more severe restrictions, including the temporary freezing of your account or permanent restrictions.
Step 5: Strategies to Effectively Avoid Good Faith Violations
Avoiding GFVs is straightforward once you understand the rules. Here are the key strategies:
Strategy 5.1: The "Wait for Settlement" Rule
For Deposits: Always wait for your deposited funds to fully settle before using them for a purchase you plan to sell quickly. Webull usually indicates when funds are settled.
For Stock Sales: Wait for the proceeds from a stock sale to fully settle (T+2) before using those specific funds to buy another stock that you intend to sell before the T+2 period of the second sale.
Strategy 5.2: Use Your "Settled Cash" Balance
On Webull, you'll see different balances: "Total Account Value," "Cash Balance," and often a "Settled Cash" or "Withdrawable Cash" figure. Always prioritize using your "Settled Cash" for new purchases, especially if you anticipate a quick sale. This is the money that is truly yours and fully available for unrestricted trading.
Strategy 5.3: Be Mindful of Intra-Day Trading (Day Trading)
If you plan to buy and sell the same security within the same trading day (day trading), ensure you have enough settled cash to cover all the purchases. Day trading with unsettled funds is a prime way to trigger a GFV.
Strategy 5.4: Understanding "Cash Available for Withdrawal" vs. "Buying Power"
Buying Power on Webull often includes unsettled funds. While it gives you the capacity to make purchases, it doesn't mean those funds are settled.
Cash Available for Withdrawal typically represents your fully settled funds. Use this as your guide for unrestricted trading.
Strategy 5.5: Consider a Margin Account (with caution!)
If you frequently engage in quick trades and understand the risks, a margin account can alleviate GFV issues because you're trading with borrowed funds (on margin), which are not subject to the same settlement rules for cash accounts. However, margin accounts come with significant risks, including the potential for margin calls and increased losses, so proceed with extreme caution and only if you fully understand how margin works.
Step 6: What to Do If You Receive a GFV Notification
Don't Panic: A single GFV is usually a learning experience.
Review Your Trades: Go back through your trade history to identify the specific transaction that caused the GFV. This will help you understand where you went wrong and prevent future occurrences.
Understand the Restriction: Note the duration of the restriction (usually 90 days). During this time, be extra diligent about using only settled funds.
Contact Webull Support (If Unsure): If you're confused about the GFV or how to proceed, don't hesitate to reach out to Webull's customer support. They can clarify the situation and help you understand your account status.
By understanding the mechanics of settlement and being mindful of your settled cash balance, you can confidently navigate your Webull account without fear of Good Faith Violations. Happy trading!
10 Related FAQ Questions about GFV on Webull
How to avoid Good Faith Violations on Webull?
Always wait for your funds (deposits or sale proceeds) to fully settle before using them to buy and quickly sell another security. Prioritize trading with your "Settled Cash" balance.
How to check my settled cash balance on Webull?
On the Webull app, navigate to your "Account" tab. You'll typically find a section that shows your "Cash Balance," and within that, there should be a clear indication of your "Settled Cash" or "Cash Available for Withdrawal."
How to know if my funds are settled on Webull?
Webull typically provides estimated settlement dates for deposits and sale proceeds. You can also check your "Cash Available for Withdrawal" balance, as this reflects only settled funds.
How to prevent a GFV after selling a stock?
After selling a stock, wait two business days (T+2) for the proceeds to settle before using those specific funds to buy a new stock that you intend to sell before its own T+2 settlement period.
How to fix a Good Faith Violation on Webull?
You don't "fix" a GFV in the sense of reversing it. Once it occurs, your account will be restricted for a set period (usually 90 days). During this time, simply ensure all your subsequent trades are made with settled funds.
How to tell the difference between settled and unsettled funds on Webull?
Settled funds are available for immediate withdrawal and unrestricted trading. Unsettled funds are those from recent deposits or sales that are still within the T+2 settlement period and are subject to GFV rules if used for quick trades.
How to manage my account after a GFV restriction?
During the restriction, always verify that you are using your "Settled Cash" balance for all new purchases. Plan your trades accordingly to avoid further violations.
How to appeal a Good Faith Violation on Webull?
GFVs are generally automatically enforced based on regulatory rules. There isn't typically an "appeal" process for a legitimate GFV, as it's a consequence of a specific trading action. However, if you believe there was an error, contact Webull support.
How to avoid GFV when day trading on Webull?
Ensure you have sufficient settled cash to cover all your day trades. If you buy and sell the same security multiple times in a day, make sure the initial capital used for those purchases was settled.
How to understand the T+2 settlement rule in relation to GFV?
The T+2 rule means it takes two business days for stock trades to officially settle. A GFV occurs when you use funds from a sale or deposit before those funds have completed their T+2 settlement cycle, and then you sell the asset bought with those unsettled funds.