Alright, let's dive deep into the fascinating (and sometimes frustrating!) world of Good Faith Violations (GFVs) on Webull. If you've ever traded stocks or considered it, understanding GFVs is absolutely crucial to avoid account restrictions and ensure a smooth trading experience. Many new traders fall into this trap, so let's make sure you're not one of them!
Navigating Good Faith Violations on Webull: Your Comprehensive Guide
Have you ever wondered why your funds aren't immediately available after selling a stock? Or perhaps you've received a mysterious "Good Faith Violation" notification and felt a pang of panic? You're not alone! Many traders, especially those using cash accounts, encounter this common hurdle. But fear not, by the end of this guide, you'll be a GFV expert, confidently navigating Webull's rules and keeping your account in good standing.
Step 1: Understanding the Core Concept - What Exactly is a GFV?
Before we get into "how many," let's first clarify what a Good Faith Violation (GFV) is. This is arguably the most important step, so pay close attention!
Imagine you're at a shop, and you buy something. You pay with cash, and the transaction is complete. Simple, right? Now imagine you pay with a cheque. The shop owner gives you the item, but they won't actually have the money until the cheque clears the bank a day or two later. If you were to then immediately use that same cheque to buy something else before it cleared, that would be a problem.
In the world of stock trading, especially with a cash account, it's similar.
Settled Funds: These are funds that have fully cleared and are available for new purchases or withdrawal. For most stock and ETF trades, settlement occurs on T+1, meaning Trade Date plus one business day. For example, if you sell a stock on Monday, the proceeds will settle on Tuesday.
Unsettled Funds: These are the proceeds from a recent sale that have not yet fully cleared the brokerage system.
A Good Faith Violation (GFV) occurs when you do the following sequence in a cash account:
You buy a security (stock, ETF, etc.) using funds that are unsettled (i.e., proceeds from a previous sale that haven't cleared yet).
You then sell that newly purchased security before the original funds used to buy it have settled.
Think of it this way: You're using money that isn't officially "yours" yet (from a pending sale) to buy something, and then selling that something before the original money is even officially in your account. The "good faith" part refers to the expectation that you intend to pay for your purchases with fully settled funds.
Why does this matter? Because it creates a risk for the brokerage. If your original sale somehow falls through (which is rare but possible), and you've already sold the second security, the brokerage would be on the hook for the cost of that second purchase. These rules are in place to prevent "free-riding," where an investor uses unsettled funds to trade without truly having the capital to cover the transactions.
Step 2: Webull's GFV Limits and Restrictions
Now that you grasp the concept, let's get to the "how many" part. Webull, like all regulated brokerages in the US, adheres to FINRA (Financial Industry Regulatory Authority) rules regarding Good Faith Violations.
Webull's policy regarding GFVs escalates with each violation within a rolling 12-month period. Here's a clear breakdown:
Sub-heading 2.1: The GFV Strike System
Webull operates on a "strike" system for GFVs, tracking them over a rolling 12-month period. This means each GFV you incur will remain on your record for one year from the date of the violation.
1st GFV: Typically, there's no immediate restriction. It serves as a warning, and Webull might send you a notification. Consider this your friendly reminder to be more careful!
2nd GFV: Still no significant account restrictions. You can continue to trade as usual, but you're now halfway to more serious limitations.
3rd GFV: This is where things get a bit tighter. Your account will be restricted to purchasing securities only with settled funds. This means you cannot use unsettled proceeds from sales to make new purchases. You'll need to wait for your funds to fully settle before buying anything new. At this point, Webull may also suggest you consider upgrading to a margin account if you're eligible, as margin accounts generally bypass GFV issues (more on that later).
4th GFV: If you reach your fourth GFV within the 12-month rolling period, your account will face a 90-calendar-day restriction. During this period, you can only purchase securities using settled funds. This restriction is more stringent and can significantly impact your trading flexibility. Broker-assisted trades will also be limited to using settled funds only.
5th GFV: This is the most severe penalty. Upon incurring your fifth GFV within the rolling 12-month period, your account will be restricted to liquidation only for 90 calendar days. This means you can only sell existing positions; you cannot make any new purchases. Furthermore, you will not be able to apply for a Margin account, and any existing Margin privileges will be suspended during this time. This is a restriction you absolutely want to avoid!
Sub-heading 2.2: Rolling 12-Month Period Explained
It's crucial to understand the "rolling 12-month period." This isn't a calendar year (January to December). Instead, it means that a GFV remains active for 12 months from the date it occurred. For example, if you get a GFV on July 1st, 2025, it will expire on July 1st, 2026. If you get your third GFV on December 1st, 2025, and your first GFV from July 1st, 2025, is still active, you'll face the settled funds restriction.
Step 3: Avoiding Good Faith Violations on Webull
Now that you know the rules and the consequences, let's equip you with strategies to never get a GFV. It's much easier than you think!
Sub-heading 3.1: The Golden Rule: Use Settled Funds!
The simplest and most foolproof way to avoid a GFV is to always ensure you have sufficient settled funds in your account before making any new purchases.
Check your "Settled Cash" balance: Webull's platform will show you your settled cash balance. This is the amount you can freely use for new purchases without risking a GFV.
Wait for funds to settle: After selling a security, simply wait one business day (T+1 for most stocks/ETFs) for the proceeds to settle before using them for a new purchase.
Sub-heading 3.2: Strategic Trading Practices
Consider these practical tips for your daily trading:
Plan your trades: If you plan to make multiple trades in a day or week, be mindful of your settled cash balance. Avoid "chaining" trades where you immediately use proceeds from one sale to make another purchase.
Fund your account adequately: Having sufficient initial capital in your account will minimize the need to rely on unsettled funds from recent sales.
Understand the settlement periods: While most stocks and ETFs are T+1, there might be exceptions for other asset classes. Always be aware of the settlement period for the specific securities you are trading.
Sub-heading 3.3: Consider a Margin Account (If Eligible and Appropriate)
This is a significant point. Good Faith Violations primarily apply to cash accounts. If you have a margin account, GFVs are generally not an issue because you can borrow against your existing securities to cover purchases, even if the funds aren't fully settled.
What is a Margin Account? A margin account allows you to borrow money from your brokerage to buy securities. This can amplify both gains and losses. You essentially use your existing securities as collateral for the loan.
Eligibility: To open a margin account on Webull, you typically need to be 21 years old and meet certain account balance requirements. Margin accounts come with their own risks, including margin calls, so understand these thoroughly before applying.
Conversion: If you currently have a cash account and frequently find yourself needing to trade with unsettled funds, converting to a margin account might be a solution. Webull allows account conversion, which usually takes about two business days.
Important Note on Margin: While a margin account can help you avoid GFVs, it introduces significant risk. You can lose more than your initial investment, and a sudden drop in the value of your securities can trigger a margin call, forcing you to deposit more funds or liquidate positions at a loss. Only consider a margin account if you fully understand and are comfortable with these risks.
Step 4: Recognizing and Reacting to a Potential GFV
Webull is generally good about providing alerts.
In-App Notifications: If you're about to make a trade that could result in a GFV, Webull's platform will often display a warning message. Heed these warnings! They are there to protect you.
Email/Push Notifications: You might also receive email or push notifications if you incur a GFV. Take these seriously and review your recent trading activity to understand why it occurred.
If you do receive a GFV:
Don't panic: One GFV is not the end of the world. It's a learning opportunity.
Review your trades: Understand exactly which transaction triggered the GFV. This will help you avoid repeating the mistake.
Adjust your strategy: If you're consistently getting close to GFVs, it's a clear sign you need to adjust your trading habits or consider if a margin account is more suitable for your trading style.
Step 5: Understanding Day Trading and Its Relationship with GFVs
While not directly a GFV, day trading in a cash account can easily lead to GFVs if you're not careful.
Pattern Day Trader (PDT) Rule: This rule, also from FINRA, applies to margin accounts. If you execute four or more day trades within five business days, and these day trades constitute more than 6% of your total trading activity during that period, you will be flagged as a Pattern Day Trader. If your account equity is below $25,000, you will face restrictions. This rule does not apply to cash accounts.
Day Trading in a Cash Account and GFVs: In a cash account, there's no official PDT rule in terms of the number of day trades. However, if you're day trading (buying and selling the same security within the same day) repeatedly in a cash account, you are highly susceptible to GFVs. Why? Because you're constantly buying with funds that haven't settled and then selling the new position before those funds clear.
Example: You have $1,000 settled cash.
Morning: You buy Stock A for $1,000.
Afternoon: You sell Stock A for $1,050. The $1,050 are now unsettled funds.
Later Afternoon: You see an opportunity and buy Stock B for $1,050 using those unsettled funds.
Even Later Afternoon: You sell Stock B. This is a GFV! You sold Stock B before the $1,050 from the Stock A sale had settled.
So, while cash accounts aren't subject to the PDT rule, they are more prone to GFVs with frequent day trading.
In Summary: The Key Takeaways for Webull GFVs
GFVs are serious violations related to using unsettled funds in a cash account.
Webull has a strict escalating penalty system: 3 GFVs lead to settled funds only, 4 GFVs lead to a 90-day settled funds restriction, and 5 GFVs lead to a 90-day liquidation-only restriction.
Always prioritize using settled funds for new purchases.
Consider a margin account if your trading style consistently requires immediate access to funds, but understand the associated risks.
Pay attention to Webull's warnings and adjust your trading behavior accordingly.
By following these steps and understanding the nuances of Good Faith Violations, you can ensure a smoother, less stressful, and more profitable trading journey on Webull. Happy trading!
10 Related FAQ Questions
Here are 10 frequently asked questions about Good Faith Violations on Webull, with quick answers to further enhance your understanding:
How to check my settled cash balance on Webull?
You can typically find your settled cash balance displayed prominently in your Webull account summary or portfolio section within the app or on the desktop platform. Look for terms like "Settled Cash" or "Cash Available for Withdrawal."
How to avoid a GFV if I accidentally bought with unsettled funds?
If you realize you've purchased a security with unsettled funds, the safest way to avoid a GFV is to not sell that security until the original funds used for the purchase have fully settled. Simply hold the position for at least one business day (T+1 for most stocks/ETFs) after the initial sale that generated the funds.
How to know when my funds will settle on Webull?
For most stock and ETF sales, funds settle on T+1 (Trade Date + 1 business day). Webull may also provide an estimated settlement date in your trade confirmation or transaction history.
How to apply for a margin account on Webull?
You can usually apply for a margin account directly within the Webull app or through their website by navigating to your account settings or profile. There will be an option to upgrade your account type. Be prepared to review and accept the margin agreement and ensure you meet the eligibility criteria.
How to reverse a GFV on Webull?
You cannot "reverse" a GFV once it has been incurred. Once a violation is recorded, it remains on your account for 12 months. The focus should be on understanding why it happened and preventing future violations.
How to understand if day trading impacts GFVs?
While the Pattern Day Trader (PDT) rule doesn't directly apply to cash accounts, frequent day trading in a cash account significantly increases your risk of incurring GFVs. This is because you're repeatedly buying with unsettled funds and then selling before those funds settle.
How to interpret Webull's GFV warnings?
Webull's GFV warnings are prompts designed to alert you if a trade you're about to execute might result in a violation. Always stop and review the warning. It usually means you're trying to sell a security bought with funds that haven't settled yet.
How to differentiate between settled and unsettled funds?
Settled funds are cash that has fully cleared from a deposit or a previous sale and is available for immediate use or withdrawal. Unsettled funds are proceeds from a recent sale that are still in the process of clearing and are not yet fully available.
How to regain full trading privileges after a GFV restriction?
If your account is restricted due to multiple GFVs, you must wait out the specified restriction period (e.g., 90 days for the 4th or 5th GFV). During this time, strictly adhere to the settled funds rule (for 3rd, 4th, or 5th GFVs) or liquidation-only rule (for 5th GFV). The restriction will automatically lift once the period expires.
How to contact Webull support for GFV questions?
You can contact Webull's customer support through their in-app chat, email, or phone. It's advisable to have your account information and the specific trade details ready when reaching out for assistance regarding GFVs.
