Navigating the world of online trading can sometimes feel like traversing a dense jungle, and encountering terms like "GFV" can certainly add to the complexity. If you're a Webull user, or considering becoming one, understanding what a Good Faith Violation (GFV) is and its implications is absolutely crucial. Don't worry, though, because we're about to demystify this entire concept for you, step by step, ensuring you're well-equipped to trade with confidence.
So, are you ready to embark on this journey to become a GFV guru? Let's dive in!
What Happens if You Get a GFV on Webull? Your Comprehensive Guide
A Good Faith Violation (GFV) is a term that often sends shivers down a new trader's spine, but it's fundamentally about how you manage unsettled funds in a cash account. Unlike margin accounts, where you can borrow money to trade, cash accounts require you to use only the funds you actually possess. When you sell securities before the original funds used to purchase them have "settled," you're essentially using money that hasn't officially arrived yet – and that's where the GFV comes into play.
Let's break down exactly what happens and how to avoid this common pitfall on Webull.
Step 1: Understanding the Basics – What Exactly is a GFV?
Before we delve into the consequences, let's ensure we're all on the same page about what a GFV is. Imagine you have a $1,000 cash account on Webull.
The Scenario: You buy Stock A for $500 on Monday. This $500 is now "tied up" until the trade settles. In the U.S. stock market, most trades settle on a T+2 basis, meaning the transaction is finalized two business days after the trade date. So, your $500 used for Stock A will settle on Wednesday.
The Violation: Now, on Tuesday, you decide to sell Stock A for $550. If you then immediately use that same $550 (which hasn't settled from the sale of Stock A yet) to buy Stock B, you've committed a Good Faith Violation. Why? Because the funds from the sale of Stock A haven't officially landed in your account yet to be considered "good faith" money. You're effectively trading on money that isn't fully "yours" in the eyes of the settlement process.
Think of it like writing a check before the money has cleared your bank account. It will clear, but it hasn't yet.
The "Good Faith" Aspect
The "good faith" refers to the assumption that you are using fully settled funds for your purchases. When you violate this, you're essentially using "unsettled" funds, which is a big no-no in cash accounts designed to prevent traders from over-leveraging themselves or creating situations where they can't cover their trades.
Step 2: Identifying GFV Triggers on Webull
Knowing the definition is one thing, but recognizing how it happens in practice is key. Webull's system, like all brokerages, adheres to these settlement rules.
Sub-heading 2.1: The T+2 Settlement Rule
As mentioned, the primary culprit for GFVs is the T+2 settlement rule. This means:
Trade Date (T): The day you execute the trade.
Settlement Date (T+2): Two business days after the trade date, when the funds or securities officially change hands.
If you buy a stock on Monday, the funds used for that purchase will settle on Wednesday. If you sell that same stock on Tuesday and then immediately use those proceeds to buy another stock, you're initiating a GFV because the funds from the Monday purchase hadn't yet settled.
Sub-heading 2.2: Using Unsettled Funds for New Purchases
This is the core of the issue. A GFV occurs when you:
Buy a security (e.g., Stock X) using funds that are already settled in your account.
Sell Stock X before the initial funds used to buy it have settled. (This is the tricky part, especially for day traders.)
Then, you use the proceeds from the sale of Stock X to buy another security (e.g., Stock Y) before the proceeds from the sale of Stock X have settled.
It's a chain reaction of unsettled funds. It's not just selling before T+2; it's about using those proceeds for a subsequent purchase before they settle.
Step 3: The Consequences – What Happens When You Get a GFV on Webull?
This is where things get serious. Webull, like all brokers regulated by FINRA, must enforce these rules. The consequences are cumulative and escalate with each violation.
Sub-heading 3.1: The Warning Shot (1st GFV)
Initial Warning: Typically, your first GFV on Webull will result in a warning. You'll likely receive a notification or email from Webull explaining the violation and reiterating the rules. Consider this your friendly reminder to adjust your trading habits.
Account Status: Your account will likely remain active, but you should pay close attention to avoid future violations.
Sub-heading 3.2: Trading Restrictions (2nd & 3rd GFVs)
Increased Scrutiny: With subsequent GFVs (often the second and third within a 12-month rolling period), Webull will start implementing restrictions.
Cash Account Restrictions: The most common restriction is that your account will be placed on cash only buying power, meaning you can only use settled cash for new purchases. You won't be able to use the proceeds from a sale until those proceeds have settled (T+2). This significantly limits your ability to day trade or even swing trade quickly.
Impact on Day Trading: If you frequently day trade in a cash account, this restriction will effectively halt your ability to do so, as you won't be able to buy and sell multiple times a day with the same pool of funds.
Sub-heading 3.3: Potential Account Freezing/Suspension (4th GFV or More)
Severe Consequences: This is the ultimate deterrent. If you accumulate four or more GFVs within a 12-month rolling period, Webull may take more drastic measures.
Account Freezing: Your account could be frozen for 90 days. During this period, you will only be able to liquidate existing positions, but you will not be able to open any new positions. This effectively shuts down your trading activity for a considerable amount of time.
Account Suspension: In extreme or repeated cases, your account could even be suspended indefinitely, meaning you might lose the ability to trade with Webull altogether. This is a worst-case scenario that you absolutely want to avoid.
Sub-heading 3.4: The 12-Month Rolling Period
It's crucial to understand that these violations are tracked on a 12-month rolling period. This means that a GFV from 11 months ago still counts towards your current tally. Once a GFV passes the 12-month mark, it typically falls off your record.
Step 4: How to Avoid Good Faith Violations on Webull
Prevention is always better than cure, especially when it comes to GFVs. Here are the golden rules to ensure you keep your Webull account in good standing:
Sub-heading 4.1: Wait for Funds to Settle!
This is the simplest and most effective strategy. Always wait for your funds to settle before using them for a new purchase.
After a Deposit: If you deposit funds into your Webull account, wait for them to fully clear and be marked as "settled" before making any trades.
After a Sale: If you sell a stock, the proceeds from that sale will not be available for new purchases until T+2. If you sell on Monday, those funds will be available for a new buy on Wednesday.
Sub-heading 4.2: Use Your "Buying Power" Wisely
Webull's platform clearly displays your "Settled Cash" and "Buying Power."
Settled Cash: This is the money that is truly available for immediate new purchases without risking a GFV. Always prioritize trading with your settled cash.
Unsettled Funds: Webull will also show you your unsettled funds. While you can use these to purchase securities, doing so and then selling those securities before the initial funds settle is what leads to a GFV.
Sub-heading 4.3: Consider a Margin Account (If Appropriate)
If you find yourself constantly hitting GFV issues because you want to day trade or swing trade frequently, a margin account might be a better fit.
Margin Account Benefits: Margin accounts allow you to borrow money from the broker to amplify your buying power. Critically, with a margin account, you don't have to wait for funds to settle before reusing them for new purchases. This is why day traders typically operate in margin accounts.
Margin Account Risks: However, margin accounts come with their own set of risks, including margin calls and the potential for greater losses. Do not apply for a margin account unless you fully understand the risks involved. Webull has clear explanations of margin trading.
Sub-heading 4.4: Track Your Trades and Settlement Dates
For active traders, it can be beneficial to keep a simple log or use Webull's transaction history to track your buys, sells, and their corresponding settlement dates. This heightened awareness can help you avoid accidental GFVs.
Sub-heading 4.5: Understand Pattern Day Trader (PDT) Rules
While distinct from GFVs, the Pattern Day Trader (PDT) rules often go hand-in-hand with discussions of cash vs. margin accounts.
PDT Definition: If you execute four or more "day trades" (buying and selling the same security within the same trading day) within a five-business-day period in a margin account, and your day trades constitute more than 6% of your total trades for that same period, you are typically flagged as a PDT.
PDT Rule Impact: PDTs must maintain a minimum equity of $25,000 in their margin account. If your equity drops below this, you'll face restrictions.
Cash Account and PDT: In a cash account, you are not subject to PDT rules in the same way. However, if you attempt to day trade frequently in a cash account, you will run into GFV issues because of the settlement times. This is why most active day traders prefer margin accounts (with the associated capital requirements).
Step 5: What to Do if You Get a GFV
Even with the best intentions, a GFV can sometimes happen. Don't panic, but take immediate action.
Sub-heading 5.1: Review the Notification
Webull will send you a notification – often via email or within the app – detailing the GFV. Read it carefully to understand which trade caused the violation.
Sub-heading 5.2: Adjust Your Trading Strategy
Immediately adapt your trading. If you've received a warning or restriction, do not continue trading in a way that will incur more GFVs.
Prioritize Settled Funds: From now on, ensure you are only using fully settled cash for new purchases.
Wait for T+2: Be disciplined about waiting two business days for funds to settle after a sale before redeploying them.
Sub-heading 5.3: Contact Webull Customer Support (If Confused)
If you're unsure why you received a GFV or how to prevent future ones, don't hesitate to reach out to Webull's customer support. They can explain the specifics of your situation and offer guidance. It's better to ask than to accumulate more violations.
Sub-heading 5.4: Consider a Margin Account Upgrade (If Eligible and Desired)
If cash account restrictions are severely impeding your trading goals, and you meet the eligibility criteria (including the $2,000 minimum equity for margin), consider applying for a margin account upgrade. Remember the increased risks associated with margin.
Conclusion: Trade Smart, Stay Compliant
Understanding Good Faith Violations is not just about avoiding penalties; it's about responsible trading. By grasping the T+2 settlement rule and consistently using settled funds for your purchases, you can confidently navigate your Webull account and pursue your trading goals without unnecessary interruptions. Remember, the rules are in place to protect both you and the integrity of the market. Happy (and compliant) trading!
10 Related FAQ Questions about GFVs on Webull
Here are some quick answers to common questions about Good Faith Violations on Webull:
How to check my GFV history on Webull?
You can typically check your GFV history and any associated warnings or restrictions within your Webull account under the "Account" or "Messages" section. Webull will usually notify you directly when a GFV occurs.
How to know if funds are settled on Webull?
Webull displays your "Settled Cash" and "Unsettled Funds" clearly on your account overview. You should always refer to your "Settled Cash" balance to determine how much money is immediately available for new purchases without risking a GFV.
How to avoid GFV for day trading on Webull?
To avoid GFVs while day trading on Webull, you essentially need a margin account if you plan to buy and sell the same securities multiple times a day with the same capital. In a cash account, day trading will almost certainly lead to GFVs due to the T+2 settlement rule.
How to fix a GFV on Webull?
A GFV cannot be "fixed" once it has occurred; it remains on your record for 12 months. The best approach is to prevent future GFVs by only using settled funds for new purchases and adhering to the T+2 settlement rule.
How to transfer to a margin account on Webull to avoid GFVs?
You can apply to upgrade your Webull cash account to a margin account through the app. Navigate to your account settings or profile, look for "Account Type" or "Upgrade Account," and follow the prompts. You'll need to meet Webull's eligibility requirements, including a minimum equity of $2,000.
How to interpret Webull's "buying power" to avoid GFVs?
Webull's "buying power" can sometimes include unsettled funds. To avoid GFVs, always rely on your "Settled Cash" balance for new purchases. Your "Cash Available for Withdrawal" is also a good indicator of fully settled funds.
How to know when my Webull account will be restricted due to GFVs?
Webull typically places restrictions after your second or third GFV within a 12-month period, often restricting you to settled cash only buying power. Your account could be frozen for 90 days after four or more GFVs. You will receive notifications for each violation and any imposed restrictions.
How to clear a GFV on Webull after a restriction?
GFVs clear from your record after 12 months. If your account is restricted, you must trade in accordance with those restrictions (e.g., using only settled cash) until the restriction period ends or the past GFVs fall off your record. There's no way to "clear" a GFV prematurely.
How to differentiate GFV from PDT on Webull?
A GFV (Good Faith Violation) is about using unsettled funds for new purchases in a cash account. PDT (Pattern Day Trader) rules apply to margin accounts and regulate the frequency of day trades (four or more day trades in five business days, making up over 6% of total trades, requiring $25,000 equity). While distinct, both can impact active traders.
How to trade effectively on Webull with a cash account and avoid GFVs?
To trade effectively on Webull with a cash account and avoid GFVs, the key is patience. Plan your trades so that you only make new purchases with funds that have already settled (T+2 after a sale or deposit). This means you generally won't be able to day trade in a cash account without incurring GFVs.
