It's frustrating, isn't it? You're trying to navigate the exciting world of stock trading, and suddenly you hear about "Good Faith Violations" (GFVs). It sounds serious, and you're probably wondering, how do I even know if I've committed one on Webull, and what happens if I do? Don't worry, you're not alone! Many new traders encounter this, and understanding it is key to a smooth trading journey.
This comprehensive guide will walk you through everything you need to know about Good Faith Violations on Webull, including how to identify if you've had one, what the consequences are, and most importantly, how to avoid them in the future.
Let's dive in!
Understanding the Core: What is a Good Faith Violation (GFV)?
Before we get to checking your account, it's crucial to grasp what a Good Faith Violation actually is. In the simplest terms, a GFV occurs in a cash account when you:
Buy a security (like a stock or ETF) using unsettled funds. Unsettled funds are proceeds from a previous sale that haven't officially "settled" yet. Think of it like this: when you sell a stock, the money doesn't instantly appear as fully available cash in your account. It takes time to clear, typically T+2 (Trade Date plus two business days).
Then, you sell that newly purchased security before the funds used to buy it have fully settled.
Essentially, you're trading with money that isn't officially "yours" yet, and then closing that trade before the initial funds have cleared. This violates regulations because it suggests you're not making a "good faith" effort to pay for the initial purchase with settled funds.
Example Scenario:
On Monday, you sell Stock A for $1,000. Your Webull account might show an updated "buying power," but those $1,000 are unsettled until Wednesday (T+2).
On Monday afternoon, you use that unsettled $1,000 to buy Stock B.
On Tuesday, you sell Stock B. This is where the GFV occurs! You sold Stock B before the $1,000 from Stock A's sale had settled to officially pay for Stock B.
Step 1: Engage and Identify – Have You Received a GFV Notification?
Let's start with the most direct way to know.
Have you received any direct notifications from Webull about a Good Faith Violation?
Webull, like other brokerage firms, is typically proactive in notifying you if you've incurred a GFV. These notifications often come in the form of:
In-app messages: Check your Webull app's notification center or message inbox.
Email alerts: Keep an eye on the email address associated with your Webull account.
Account statements: While not immediate, GFVs might be reflected in your periodic account statements.
It's crucial to read these alerts carefully. They will explain what happened and often provide guidance on how to avoid future violations.
Sub-heading: Why You Might Not Have Noticed (Yet!) Sometimes, these notifications can get buried, or you might not realize their significance until you're actively looking for them. Don't panic if you haven't seen one – it doesn't necessarily mean you're in the clear, but it's a good first check.
Step 2: Proactive Check – Reviewing Your Transaction History
Even if you haven't received a direct notification, you can often deduce if you've committed a GFV by reviewing your past trades, especially if you actively trade in a cash account with limited settled funds.
Sub-heading: What to Look For in Your Transaction History You'll need to focus on the timing of your trades and the settlement dates. Here's the step-by-step process:
Open the Webull App or Desktop Platform: Log in to your Webull account.
Navigate to Your Account/Portfolio: Look for a section that displays your account details, holdings, and transaction history. This is usually labeled "Account," "Assets," or "Portfolio."
Access Your Order/Trade History: Within your account section, find "Order History," "Trade Details," or a similar option that lists all your executed buy and sell orders.
Identify Potential GFV Scenarios:
Focus on Sell Orders that Generate Proceeds: Look for instances where you sold a stock or ETF. Note the trade date of these sales.
Look for Subsequent Buy Orders: Immediately after those sell orders (within the same day or next business day), did you use those proceeds to buy another stock or ETF?
Check for Quick Sales of the New Purchase: Did you then sell that newly purchased stock or ETF before the proceeds from your initial sale (the one that funded the new purchase) had a chance to settle (T+2)?
This is the critical sequence that triggers a GFV. If you bought something with money from a recent sale and then sold that new purchase before the initial sale's funds settled, you've likely incurred a GFV.
Important Note: Webull often provides "instant buying power" when you sell a stock, meaning the funds appear available for new purchases right away. However, this does not mean the funds are settled. Using this instant buying power for a new purchase is fine, but selling that new purchase before the original funds settle is the problem.
Step 3: Understanding GFV Penalties on Webull
Good Faith Violations come with a tiered system of consequences on Webull. It's not usually a one-and-done account closure, but repeated violations lead to increasing restrictions.
Sub-heading: The "Strike" System and Its Implications
1st GFV: You'll likely receive a warning or notification. No immediate account restrictions.
2nd GFV: Still primarily a warning, emphasizing the rules.
3rd GFV (within a rolling 12-month period): This is where it gets serious. Your account will typically be restricted to settled funds only for a period of 90 calendar days. This means you cannot use unsettled funds to make new purchases. You must wait for all funds to fully settle before placing any new buy orders. This can significantly limit your trading flexibility.
4th GFV (within a rolling 12-month period): Similar to the 3rd, you'll still be restricted to settled funds only for 90 days, but it's a stronger indication of continued non-compliance.
5th GFV (within a rolling 12-month period): Your account may be restricted to liquidation only for 90 calendar days. This is the most severe consequence, meaning you can only sell existing positions and cannot make any new purchases. In extreme cases of persistent violations, a brokerage could even consider account closure.
Each GFV typically expires after 13 months from its trade day. This "rolling 12-month period" means that older violations eventually fall off, but new ones keep the count going.
Step 4: Proactive Prevention – Avoiding GFVs
Knowing you have a GFV is one thing, but preventing future ones is even more important. Here are the key strategies:
Sub-heading: The Golden Rule: Patience and Settled Funds
Wait for Funds to Settle (T+2): The simplest and most effective way to avoid a GFV is to wait two business days after selling a security before using those proceeds to buy another security that you intend to sell quickly. This ensures your funds are fully settled.
Trade Only with Settled Cash: Before making a purchase, always check your "Settled Cash" balance on Webull, not just your "Available Buying Power." Your settled cash represents funds that are fully cleared and available without GFV risk.
Deposit New Funds: If you want to make a quick trade after a sale, consider depositing additional cash into your account to cover the new purchase. This way, you're using fresh, settled funds.
Consider a Margin Account (with caution!): Margin accounts generally allow you to trade with unsettled funds without incurring GFVs, as you're essentially borrowing from the brokerage. However, margin accounts come with their own set of risks, including margin calls and increased leverage, so they are not suitable for all investors. If you're a beginner, stick to a cash account and learn the settlement rules first.
Understand Bank Holidays: Be aware that bank holidays can affect settlement times. If a bank holiday falls within the T+2 period, your settlement will be delayed.
Step 5: If You're Restricted – What to Do
If your account has been restricted due to GFVs, here's how to navigate it:
Review the Restriction Details: Webull will provide specific information about the restriction, including its duration and what you can and cannot do.
Adhere to the Restriction: Do not attempt to circumvent the restrictions. This could lead to further penalties.
Prioritize Settled Fund Trading: For the duration of the restriction, make sure every new purchase is made using only settled funds. This means you might need to adjust your trading strategy to longer-term holds or ensure you have sufficient settled cash on hand before initiating trades.
Contact Webull Support (if needed): If you're unclear about the restriction or have specific questions, reach out to Webull's customer support. They can provide clarification and guidance.
Frequently Asked Questions (FAQs) about Good Faith Violations on Webull
Here are 10 common questions with quick answers to help you further understand and manage GFVs:
How to know if I have a Good Faith Violation on Webull? Webull will typically send you an in-app notification or email alert if you incur a GFV. You can also review your trade history to identify the specific sequence of trades that caused it.
How to check my settled funds on Webull? On the Webull app or desktop platform, navigate to your "Account" or "Assets" section. You should see a breakdown of your balances, including "Settled Cash" or similar terminology.
How to avoid a Good Faith Violation on Webull? The best way is to wait for your funds to fully settle (T+2 business days) after a sale before using those proceeds to make a new purchase that you intend to sell quickly. Always prioritize trading with "Settled Cash."
How to calculate the settlement period for my trades? For most stock and ETF trades, the settlement period is T+2, meaning Trade Date plus two business days. So, a trade on Monday settles on Wednesday. Options can have different settlement periods (often T+1).
How to get rid of a Good Faith Violation on my Webull account? Individual GFVs cannot be "removed" but they expire after 13 months from the trade date. The goal is to avoid accumulating more within a rolling 12-month period to prevent account restrictions.
How to prevent further restrictions after a GFV? After incurring a GFV, be extra diligent about waiting for funds to settle before making new purchases. If you have an active restriction, strictly adhere to trading only with settled funds.
How to convert my cash account to a margin account on Webull to avoid GFVs? You can apply for a margin account through your Webull app or desktop platform. However, be aware that margin accounts have different risks and are not suitable for everyone. Research margin trading thoroughly before applying.
How to understand "instant buying power" versus "settled funds"? "Instant buying power" allows you to immediately use the proceeds from a sale for a new purchase, before those funds have officially settled. "Settled funds" are cash that has fully cleared and is entirely yours to trade without GFV risk.
How to know if a bank holiday will affect my trade settlement? If a bank holiday falls within the T+2 settlement period, it will extend the settlement time by one day. Always check for upcoming market holidays.
How to contact Webull support for GFV clarification? You can typically contact Webull support through their app (chat or help center), their official website, or by phone. Look for "Contact Us" or "Support" sections.
By understanding these rules and diligently managing your trades, you can avoid the headache of Good Faith Violations and enjoy a smoother, more confident trading experience on Webull!
