Have you ever felt that sinking feeling when you try to make a trade on Webull, only to be hit with a message about a "Good Faith Violation" (GFV)? It can be incredibly frustrating, especially when you think you have enough funds. But don't worry, you're not alone! Many new and even experienced traders stumble upon this common issue. The good news is, with a little understanding and some strategic planning, you can completely avoid GFVs and keep your trading smooth and uninterrupted.
This comprehensive guide will walk you through exactly what a GFV is, why it happens on Webull (and other brokerage platforms), and most importantly, provide you with clear, step-by-step instructions to prevent them from ever impacting your trading again. Let's dive in!
Understanding the Core: What Exactly is a Good Faith Violation (GFV)?
Before we get into prevention, let's clarify what we're up against. A Good Faith Violation (GFV) occurs in a cash account when you sell a security that you purchased with unsettled funds, and then subsequently use those same unsettled proceeds to buy another security before the initial sale has fully settled.
Think of it like this: You sell an item online, and the money immediately shows up in your bank account as "pending." If you then use that "pending" money to buy something else, and then try to sell that new item before the original "pending" money actually clears, that's essentially what a GFV is in the trading world. The broker assumes you're acting in "good faith" by intending to fully pay for your purchases, but if you liquidate a position bought with funds that haven't truly settled, it signals a lack of that "good faith."
The Crucial Concept: Settlement Period (T+1)
The key to understanding GFVs lies in the settlement period. When you buy or sell a stock, the transaction isn't instantaneous. There's a period of time, mandated by regulatory bodies, for the actual exchange of money and ownership of the securities to take place.
T+1 Settlement: As of May 2024, the U.S. stock market operates on a T+1 settlement cycle. "T" stands for trade date, and "+1" means one business day after the trade date. So, if you buy or sell a stock on Monday, the funds will officially settle on Tuesday. This used to be T+2 (two business days) but has recently been shortened.
Why this matters: Even though Webull might show you the funds immediately in your "buying power," these are unsettled funds if they came from a recent sale. You can use these unsettled funds to buy a new security, but you cannot sell that new security until the original funds that paid for it have fully settled (i.e., after T+1).
The Mechanics of a GFV on Webull
Let's illustrate with a common scenario that leads to a GFV:
Scenario: You have a cash account on Webull.
Monday Morning: You sell Stock A for $1,000. These funds are now unsettled.
Monday Afternoon: You immediately use that $1,000 (which is unsettled from the sale of Stock A) to buy Stock B.
Tuesday Morning (before settlement of Stock A proceeds): You see a quick profit opportunity and sell Stock B.
Result: This is a GFV! You sold Stock B before the $1,000 from the sale of Stock A had officially settled and become "settled cash." Webull views this as using funds that weren't truly yours yet to make a new purchase and then liquidating that purchase before the initial funds cleared.
Step-by-Step Guide to Avoiding GFVs on Webull
Now that we understand the problem, let's get to the solutions! Follow these steps diligently to keep your Webull cash account GFV-free.
Step 1: Engage with Your Funds - Know the Difference Between Settled and Unsettled!
Are you ready to become a GFV-avoidance master? The very first and most crucial step is to actively understand and monitor your settled vs. unsettled funds on Webull. Don't just look at your "Available to Trade" balance and assume it's all ready for immediate action.
Where to find it: On the Webull app, navigate to your "Account" tab. Then, look for a section related to your "Balances" or "Details." Here, you should see a breakdown that includes "Cash Available for Withdrawal," "Unsettled Funds," or similar terminology. The cash available for withdrawal is your truly settled cash.
Your Mission: Before every trade, especially if you've recently sold a security, check this balance! If the funds you intend to use for a new purchase are still listed as "unsettled," proceed with caution.
Step 2: The "Wait it Out" Rule – The Simplest Solution
This is the golden rule for GFV prevention in a cash account: If you use proceeds from a sale to buy a new security, do not sell that new security until the original funds have settled.
Practical Application: If you sell a stock on Monday, the proceeds will settle on Tuesday (T+1). If you use those proceeds to buy another stock on Monday, you must wait until Wednesday to sell that second stock without incurring a GFV. This gives the original funds (from the Monday sale) time to settle on Tuesday.
Patience is truly a virtue in this scenario. If you're a day trader, this rule can be a constraint, which leads us to our next step.
Step 3: Fund Your Account Generously – The "Settled Cash Cushion" Strategy
One of the most effective ways to avoid GFVs, especially if you engage in frequent trading, is to maintain a healthy balance of settled cash in your Webull account.
How it works: If you have enough settled cash to cover your new purchase, even if you sell something earlier in the day, you won't incur a GFV. The system will use your settled cash for the new purchase, rather than the unsettled proceeds from your recent sale.
Example: You have $2,000 in settled cash. On Monday morning, you sell Stock X for $1,000. Later that day, you want to buy Stock Y for $800. Since you have $2,000 in settled cash, Webull will use that settled cash to buy Stock Y. You can then sell Stock Y on the same day without a GFV because it was bought with settled funds. The $1,000 from Stock X's sale will just become settled cash the next day.
This strategy provides flexibility for active traders.
Step 4: Consider a Margin Account (with caution!)
If you find the restrictions of a cash account too limiting for your trading style, especially if you want to day trade frequently, a margin account might be an option.
What a Margin Account Offers: Margin accounts allow you to borrow money from your broker to make trades. This eliminates GFV issues because you're essentially using borrowed funds (or your own capital plus borrowed funds) for your purchases, rather than waiting for sales to settle. Margin accounts are subject to "Pattern Day Trader" (PDT) rules if your account equity is below $25,000, which has its own set of considerations.
Important Warning: Trading on margin involves significant risks. You can lose more than your initial investment, and you'll incur interest charges on borrowed funds. It's not suitable for all investors, particularly beginners. Do thorough research and understand the risks before applying for a margin account. Webull has eligibility requirements for margin accounts.
Step 5: Mind Your Day Trades – Avoid Selling What You Just Bought (with Unsettled Funds)
While cash accounts aren't subject to the Pattern Day Trader (PDT) rule that affects margin accounts, they are susceptible to GFVs if you repeatedly buy and sell within the same day using unsettled funds.
The Trap: The core of the GFV is selling a security that was bought with unsettled funds before those funds settle. If you buy a stock on Monday with unsettled funds and then sell it on Monday, you've committed a GFV.
The key takeaway here is to be mindful of your intent. If you're buying something with the express intent to flip it quickly, ensure you have sufficient settled cash to cover that purchase.
Step 6: Understand Banking Holidays – They Affect Settlement!
Market holidays can impact the T+1 settlement cycle. If there's a banking holiday, the settlement period will extend.
Example: If you sell a stock on Friday and Monday is a banking holiday, the funds won't settle until Tuesday. This means if you buy something with those Friday proceeds, you'd have to wait until Wednesday to sell it without a GFV.
Always check the holiday calendar if you're making trades near a long weekend or a recognized banking holiday.
Step 7: Utilize Webull's Notifications (and don't ignore them!)
Webull often provides warnings or notifications if a potential GFV situation is arising.
Pay close attention to these alerts. They are designed to help you avoid violations. If you get a warning that a trade might result in a GFV, take a moment to re-evaluate your plan. It's better to pause and confirm your settled balance than to incur a violation.
Consequences of Multiple GFVs
Webull, like other brokers, has escalating consequences for repeated GFVs within a rolling 12-month period:
1st and 2nd GFV: Usually a warning or minor restriction.
3rd GFV: Your account may be restricted to only purchasing securities with settled funds for a period, typically 90 calendar days. This means you effectively cannot use unsettled proceeds from sales to make new purchases until they fully settle.
4th and 5th GFV (or more): Can lead to more severe restrictions, including your account being limited to liquidation only for an extended period (e.g., 90 days), meaning you can only sell existing positions and cannot open new ones.
These restrictions can severely impact your ability to trade effectively, so avoiding GFVs is paramount!
10 Related FAQ Questions
How to check unsettled funds on Webull?
You can typically check your unsettled funds by navigating to your "Account" tab in the Webull app, then looking for "Balances" or "Details." You'll usually see "Cash Available for Withdrawal" (settled funds) and a separate line for "Unsettled Funds" or "Pending Funds."
How to avoid Good Faith Violations as a day trader on Webull?
As a day trader with a cash account, the best way to avoid GFVs is to ensure you always have enough settled cash in your account to cover your trades. This allows you to buy and sell multiple times within a day without waiting for individual sales to settle. Alternatively, consider a margin account if eligible, understanding its associated risks.
How to differentiate between settled and unsettled funds on Webull?
Settled funds are those that have fully cleared the T+1 settlement period and are available for immediate use or withdrawal. Unsettled funds are proceeds from recent sales that have not yet completed this settlement process. On Webull, "Cash Available for Withdrawal" typically indicates your settled funds.
How to upgrade to a margin account on Webull?
To upgrade to a margin account on Webull, you usually need to apply through the app. Go to your "Account" section, look for "Trading Privileges" or "Account Type," and follow the instructions to apply for margin. Be prepared to provide financial information, and remember there are eligibility requirements and significant risks involved.
How to know when funds will settle on Webull?
For most stock and ETF sales, funds will settle on the next business day (T+1). So, if you sell on a Monday, they settle on Tuesday. If you sell on a Friday, they settle on Monday (assuming no holidays). Webull's app may also show you estimated settlement dates for pending transactions.
How to avoid a GFV if I accidentally bought with unsettled funds?
If you've bought a stock with unsettled funds, the key is not to sell that stock until the original funds used for the purchase have fully settled. Wait until the next business day (or longer if there's a holiday) before selling the newly purchased security.
How to clear a Good Faith Violation on Webull?
GFVs are essentially a mark on your account and cannot be "cleared" immediately. They remain on your record for a rolling 12-month period. The best way to "clear" them is to avoid further violations so that previous ones expire naturally after 12 months.
How to manage cash flow to prevent GFVs on Webull?
The most effective way to manage cash flow is to always prioritize using settled funds for new purchases. If you plan to make multiple trades, ensure your initial capital deposit is substantial enough to cover all intended purchases, or wait for funds to settle before reusing them.
How to interpret Webull's GFV warnings?
If Webull displays a warning about a potential GFV, it means your current trade, if executed, could lead to a violation because you're attempting to use unsettled funds in a way that contravenes GFV rules. Heed these warnings and adjust your trading strategy or wait for funds to settle.
How to use the T+1 settlement cycle to my advantage without GFV?
The T+1 cycle means you get your funds faster. To use it to your advantage without a GFV, you can sell a stock on Day 1, and on Day 2, those funds become settled. You can then use those settled funds for new purchases and sell those new purchases on the same day without a GFV. The trick is to ensure the funds are fully settled before you use them for a quick flip.