"How many Good Faith Violations (GFVs) can you have on Webull?" If you're asking this question, you've likely dipped your toes into the exciting (and sometimes confusing!) world of online trading. It's a common concern, and understanding GFVs is crucial for any trader, especially those using cash accounts. Let's dive deep into what a GFV is, how it affects your Webull account, and most importantly, how to avoid them like a pro.
Understanding Good Faith Violations (GFVs) on Webull: A Comprehensive Guide
Step 1: Are You Ready to Demystify GFVs? Let's Start with the Basics!
Before we get into the nitty-gritty of how many GFVs you can incur, let's make sure we're on the same page. What exactly is a Good Faith Violation?
Simply put, a Good Faith Violation (GFV) occurs when you:
Purchase securities (like stocks or options) using funds that haven't "settled" yet. These unsettled funds usually come from the sale of other securities.
Then, you sell those newly purchased securities before the original funds used for their purchase have officially settled.
Think of it like this: You sell your old car for cash. You immediately use that cash to buy a new car. But the bank hasn't officially processed the funds from your old car's sale yet. If you then sell the new car before the old car's funds are officially in your account, that's essentially a GFV in the trading world. The term "good faith" refers to the expectation that you'll have settled funds to cover your purchases.
Why does this matter? Because brokers like Webull operate under regulations designed to ensure financial stability and prevent overly speculative trading with unconfirmed funds.
Step 2: The Critical Concept of "Settled Funds"
To truly grasp GFVs, you must understand settlement times. This is a core concept that often trips up new traders.
Settlement Timeframes:
Stocks, ETFs, and Options (Most Common): The standard settlement time in the US market is currently T+1, meaning Trade Date plus One Business Day. So, if you sell a stock on Monday, the funds from that sale won't officially "settle" and be available for withdrawal or unrestricted new purchases until Tuesday.
Italicized point: While the proceeds are often immediately available for reinvestment within your brokerage account (this is a key differentiator for margin accounts, which we'll discuss), they aren't technically "settled" until T+1.
Example of a GFV in a Cash Account:
Monday: You have $1,000 in settled cash in your Webull account.
Monday: You buy 100 shares of XYZ stock for $10 each, using your $1,000 settled cash.
Tuesday (Morning): You sell those 100 shares of XYZ for $12 each, generating $1,200 in proceeds. These proceeds are currently unsettled.
Tuesday (Afternoon): You immediately use that $1,200 to buy 50 shares of ABC stock.
Wednesday (Morning): The price of ABC stock drops, and you decide to sell your 50 shares of ABC.
BAM! You've just incurred a Good Faith Violation. Why? Because you sold ABC stock on Wednesday, but the $1,200 from the XYZ sale (which you used to buy ABC) didn't settle until Wednesday. You sold ABC before the funds used to buy it had settled.
Step 3: Webull Account Types and Their GFV Implications
The type of account you hold on Webull significantly impacts your susceptibility to GFVs.
Sub-heading: Cash Accounts - The GFV Hotbed
What it is: In a cash account, you can only trade with the money you have deposited and settled. You cannot borrow money from Webull.
GFV Risk: Cash accounts are highly prone to Good Faith Violations because you are reliant on funds settling before you can use them for new purchases and subsequent sales without penalty. Day trading (buying and selling the same security within the same trading day) in a cash account almost guarantees a GFV if you're not careful about your settled funds.
Key takeaway: If you have a cash account, you need to be extremely diligent about tracking your settled funds and trade settlement times.
Sub-heading: Margin Accounts - The GFV Solution (with Caveats)
What it is: A margin account allows you to borrow money from Webull to increase your purchasing power. This is often referred to as "trading on margin."
GFV Risk: Margin accounts are generally not subject to Good Faith Violations in the same way cash accounts are. This is because when you trade on margin, you're essentially using borrowed funds, which bypass the "unsettled funds" issue for GFVs. You have immediate access to the proceeds from sales for reinvestment.
Important note: While margin accounts help you avoid GFVs, they introduce other risks, such as margin calls (where you might need to deposit more funds if your account value drops) and interest charges on borrowed money. You also need a minimum account balance (typically $2,000) to maintain margin privileges and avoid Pattern Day Trader (PDT) rules if you make too many day trades.
Step 4: The GFV Strike System on Webull - How Many is Too Many?
Webull, like other brokers, implements a tiered system for Good Faith Violations. Each GFV you incur stays on your account for a rolling 12-month period. The consequences escalate with each strike.
1st GFV: You will likely receive a warning or notification from Webull, explaining what happened and how to avoid it in the future. No immediate restrictions typically apply. Consider this a learning opportunity!
2nd GFV: Still no immediate restrictions, but it's a clear sign you need to adjust your trading habits.
3rd GFV (within 12 months): This is where it gets serious for cash accounts. Your account will be restricted. You will generally only be able to purchase securities using settled funds. This means you cannot use funds from a recent sale until they have fully settled (T+1). This significantly limits your ability to day trade or make quick, successive trades. Webull may also recommend you apply for a Margin account if eligible.
4th GFV (within 12 months): Your account can be placed under a 90-calendar-day restriction. During this period, you will only be able to purchase securities using settled funds, and broker-assisted trades will also be limited to using settled funds. This is a severe limitation for active traders.
5th GFV (within 12 months): This is the most severe penalty. Your account will be restricted to liquidation only for 90 calendar days. This means you can only sell existing positions; you cannot open any new positions. Furthermore, you will not be able to apply for a Margin account, and any existing Margin privileges may be suspended during this time.
The bottom line: You can theoretically incur multiple GFVs, but the consequences become increasingly restrictive the more you accumulate within a 12-month rolling period. The goal should be to avoid them entirely.
Step 5: Proactive Strategies to Never Get a GFV on Webull
Avoiding Good Faith Violations is entirely within your control, especially in a cash account. Here's your step-by-step guide to GFV-free trading:
Sub-heading: The Golden Rule: Only Trade with Settled Funds
Patience is a Virtue: This is the simplest and most effective strategy. If you sell a stock today, resist the urge to immediately use those proceeds for a new purchase and subsequent sale today. Wait for the funds to settle (T+1).
Example: If you sell XYZ stock on Monday, wait until at least Tuesday before using those funds to buy ABC stock, especially if you plan to sell ABC quickly.
Sub-heading: Understand Your Webull Balance Breakdown
Webull's platform will show you various balances:
Cash Balance: Your total cash.
Available to Trade: How much you can immediately use for new purchases.
Unsettled Funds: Proceeds from recent sales that haven't settled yet.
Always prioritize trading with "Settled Cash" or "Available to Trade" amounts that do not include unsettled funds if you plan to sell quickly.
Sub-heading: Consider a Margin Account (If Appropriate for You)
If you are an active trader or plan to day trade frequently, opening a margin account (if you meet the eligibility requirements, including being over 21 and maintaining a $2,000 minimum balance) is the best way to avoid GFVs. Margin accounts provide immediate access to sale proceeds for reinvestment.
Caveat: Be fully aware of the risks associated with margin trading before opting for this account type.
Sub-heading: Maintain a Cash Buffer
Keep a portion of your account balance in fully settled cash. This way, if a new trading opportunity arises before your other funds settle, you have a readily available pool of money to use without incurring a GFV.
Sub-heading: Plan Your Trades Carefully
Before executing a trade, especially if it involves funds from a recent sale, consider the settlement timeline. If you anticipate selling the new security quickly, ensure the funds you're using for the purchase are already settled.
Think ahead: Ask yourself: "Did the funds I'm using to buy this stock come from a sale that has already settled?" If the answer is no, and you intend to sell the new stock quickly, you're probably heading towards a GFV.
Step 6: What to Do If You Incur a GFV
Even with the best intentions, a GFV can sometimes happen. Don't panic!
Review the Notification: Webull will send you a notification or alert. Read it carefully to understand which transaction caused the GFV.
Adjust Your Strategy: Take it as a learning experience. For the next 12 months, be extra cautious with your trading, especially regarding settled funds.
Consider Depositing More Funds: If you find yourself repeatedly running into GFV issues, depositing additional settled cash into your account can provide a larger buffer and reduce your reliance on unsettled funds.
Contact Webull Support: If you're confused or unsure about a GFV, don't hesitate to reach out to Webull's customer support for clarification.
10 Related FAQ Questions (How to...)
Here are some quick answers to common questions related to Good Faith Violations on Webull:
How to check my settled cash balance on Webull? You can typically find your settled cash balance within your account's "Balances" or "Portfolio" section on the Webull app or desktop platform. Look for "Cash Balance," "Settled Cash," or "Available Funds."
How to avoid GFV when day trading on Webull? The most effective way to avoid GFVs when day trading is to use a margin account. If you're in a cash account, ensure you only use fully settled funds for your day trades, meaning you either have sufficient cash that wasn't just generated from a sale, or you wait for sales proceeds to settle (T+1) before using them for a new trade that you intend to sell the same day.
How to get rid of a GFV on Webull? You cannot "get rid" of a GFV once it's incurred. It remains on your record for a rolling 12-month period. The best approach is to avoid accumulating more violations by adhering to the settled funds rule.
How to convert my Webull cash account to a margin account? You can apply to convert your cash account to a margin account within the Webull app. Navigate to your account settings or profile, look for "Account Type" or "Upgrade Account," and follow the prompts to apply for margin privileges. You'll need to meet specific eligibility criteria, including a minimum account value of $2,000 for PDT purposes.
How to understand Webull's settlement times? For most securities like stocks, ETFs, and options, the settlement time on Webull is T+1 (Trade Date plus one business day). This means the funds from a sale become fully settled and available the next business day after the trade.
How to calculate how many day trades I have left on Webull? Webull's platform will typically display your "Day Trades Left" if you are subject to Pattern Day Trader (PDT) rules (which applies to margin accounts with less than $25,000). You can usually find this information in your trading profile or account summary.
How to avoid PDT rules on Webull? To avoid Pattern Day Trader (PDT) rules, you must either maintain an account equity of $25,000 or more in a margin account, or restrict yourself to fewer than four day trades within any five consecutive business days. Alternatively, trade in a cash account, but be mindful of Good Faith Violations.
How to fund my Webull account to avoid GFV? To avoid GFVs, ensure your funding method allows for quick settlement. ACH transfers can take 3-5 business days to settle. Wire transfers and debit card deposits often settle faster (within 1 business day). The key is to wait for the funds to be fully settled before engaging in rapid trading that could trigger a GFV.
How to know if funds are settled on Webull? Your Webull account balances will differentiate between "Cash Balance," "Settled Cash," and "Unsettled Funds." Always refer to your "Settled Cash" or "Available to Withdraw" balance to confirm funds are fully settled.
How to recover from a 90-day GFV restriction on Webull? If your account is placed under a 90-day GFV restriction, you simply need to wait out the 90-calendar-day period. During this time, you will be limited to buying with settled funds or, in the most severe cases, only liquidating existing positions. Focus on understanding the rules better and plan your trades carefully once the restriction is lifted.
