Tired of those pesky "Good Faith Violation" warnings popping up on your Webull account? You're not alone! Many new and even experienced traders stumble upon this common pitfall, especially when navigating the intricacies of cash accounts. But don't worry, by the end of this comprehensive guide, you'll be equipped with all the knowledge and strategies to confidently avoid good faith violations and keep your trading smooth and uninterrupted on Webull.
Let's dive in and transform you into a GFV-avoidance pro!
Understanding the Beast: What Exactly is a Good Faith Violation (GFV)?
Before we learn how to avoid it, it's crucial to understand what a Good Faith Violation (GFV) actually is. In simple terms, a GFV occurs in a cash account when you:
Buy a security (stock, ETF, option) using funds that have not yet settled from a previous sale.
Then, you sell that newly purchased security before the funds from the initial sale have fully settled.
Think of it like this: Webull, in "good faith," allows you to use the proceeds from a sale almost immediately to buy another security, even though the actual cash from that sale hasn't officially arrived in your account yet (it's in transit, so to speak). However, if you then sell the new security before the original sale's funds have cleared, you're essentially spending money you don't technically have settled, leading to a GFV.
Key Concept: Settlement Period (T+1)
The crucial element here is the settlement period. For most stocks, ETFs, and options, the settlement period in the US is T+1. This means "Trade Date plus one business day." So, if you sell a stock on Monday (T), the funds from that sale will officially settle on Tuesday (T+1).
The Impact of Good Faith Violations on Your Webull Account
While a single GFV might not seem like a big deal, accumulating them can lead to significant restrictions on your trading activity.
First Few GFVs (1-3): These are usually recorded, and you'll receive warnings. Think of them as a gentle tap on the wrist.
Fourth GFV within a 12-month rolling period: This is where it gets serious. Your cash account will likely be restricted to buying with settled funds only. This means you'll have to wait for your funds to fully settle before you can use them for new purchases, which can severely limit your trading flexibility, especially for active traders. This restriction typically lasts for 12 months from the earliest GFV received.
Fifth GFV within a 12-month rolling period: This is the most severe restriction. Your account will be set to "sell only" for 90 days. This means you can only sell existing positions; you cannot open any new positions. This can be incredibly frustrating and disruptive to your trading strategy.
These restrictions are mandated by regulatory bodies like FINRA and the SEC, and brokers like Webull are required to enforce them. They are designed to prevent excessive risk-taking with unsettled funds.
Step-by-Step Guide: How to Avoid Good Faith Violations on Webull
Now that you understand the "what" and the "why," let's get to the "how." Here's a step-by-step guide to help you navigate Webull and avoid Good Faith Violations.
Step 1: Engage with Your Account Type – Do You Truly Understand It?
Before you even think about placing a trade, take a moment to fully understand the type of account you have on Webull. This is the most critical first step!
Are you operating a Cash Account or a Margin Account? This distinction is paramount.
Cash Accounts: Good Faith Violations only apply to cash accounts. In a cash account, you must pay for all securities in full. You cannot borrow funds, and thus, you are susceptible to GFV rules.
Margin Accounts: Good Faith Violations generally do not apply to margin accounts. In a margin account, you have the privilege to borrow funds from Webull, allowing you to trade with leverage and often access funds from sales immediately for reinvestment without waiting for settlement. However, margin accounts come with their own set of risks and rules (like margin calls and pattern day trading rules) that you must understand. If you're consistently running into GFVs, upgrading to a margin account (if you meet the requirements and understand the risks) might be a consideration, but it's not a blanket solution.
Action Point: Log into your Webull account. Check your account settings or profile to confirm if you have a Cash or Margin account. If you're unsure, contact Webull customer support for clarification.
Step 2: Master the Art of Settled vs. Unsettled Funds
This is the core concept of avoiding GFVs. You need to always be aware of the nature of the cash in your account.
Sub-heading: What are Settled Funds?
Settled funds are cash that has fully cleared and is available for immediate use without any restrictions. This includes:
Money you've deposited into your account via ACH, wire transfer, or other methods, after the deposit has fully cleared (which can take a few business days depending on the method).
Proceeds from the sale of securities that have completed their settlement period (T+1 for most).
Sub-heading: What are Unsettled Funds?
Unsettled funds are the proceeds from a recent sale of a security that have not yet completed their settlement period. While Webull often makes these funds available for trading in good faith, they aren't technically "yours" in a settled form until T+1.
Action Point: Get into the habit of checking your "Available Funds" on Webull and, more importantly, understanding how much of that is settled cash versus unsettled proceeds. Webull's interface often provides a breakdown of settled cash.
Step 3: Strategize Your Trades – The Golden Rules
This is where the rubber meets the road. Apply these strategies to your trading routine.
Sub-heading: Rule 1: Always Use Settled Funds for New Purchases
The simplest and most effective way to avoid a GFV is to ensure that any new purchase you make is funded entirely by settled cash.
If you have $500 in settled cash and you sell a stock for $1000, bringing your available balance to $1500 (with $1000 being unsettled), only use the $500 settled cash for your next purchase if you intend to sell it quickly.
Sub-heading: Rule 2: Wait for Settlement Before Re-selling Purchased Securities with Unsettled Funds
If you did use unsettled funds to purchase a new security, do not sell that newly purchased security until the original sale's funds have fully settled (T+1).
Example:
Monday: You have $0 settled cash. You sell Stock A for $1,000. These $1,000 are now unsettled proceeds.
Monday afternoon: You immediately use these $1,000 (unsettled) to buy Stock B.
To avoid a GFV, you must wait until Tuesday (when the sale of Stock A settles) before you sell Stock B. If you sell Stock B on Monday afternoon, you've committed a GFV.
Sub-heading: Rule 3: Maintain a Cash Buffer
Keep a sufficient amount of settled cash in your account. This provides a buffer and allows you to make new purchases without dipping into unsettled funds.
Imagine you typically trade with $1,000 at a time. Always having at least $1,000 in settled cash means you can execute one trade without worrying about settlement times for previous sales.
Sub-heading: Rule 4: Avoid "Round-Trip" Trades on Unsettled Funds
A common scenario for GFVs is the "round-trip" trade. This means:
Selling a stock.
Using the unsettled proceeds from that sale to buy a new stock.
Selling the new stock before the original sale's funds have settled.
This sequence is a classic GFV. Break the chain by waiting for settlement after your first sale if you plan to immediately reinvest the proceeds and then sell again.
Step 4: Monitor Your Webull Account & Notifications
Webull often provides warnings and indicators to help you avoid violations. Pay close attention!
Sub-heading: Understand Webull's Cash Balance Display
Familiarize yourself with how Webull displays your cash balances. Look for clear indicators of "Settled Cash" or "Cash Available for Withdrawal" versus other "Available to Trade" figures that might include unsettled funds.
Webull usually shows you how much settled cash you have. Prioritize using this amount for immediate reinvestment if you plan on selling again quickly.
Sub-heading: Heed Warning Messages
If Webull pops up a warning when you're about to place a trade, read it carefully. These warnings are often designed to prevent GFVs or other violations. Don't just click "confirm" blindly!
Step 5: Consider a Margin Account (with caution!)
As mentioned, margin accounts are generally exempt from GFV rules because you're essentially borrowing money from the broker.
Pros of a Margin Account (regarding GFVs):
Funds from securities sales are often available for reinvestment immediately, bypassing the settlement period for GFV purposes.
Increased purchasing power through leverage.
Cons of a Margin Account:
Increased Risk: You can lose more than your initial investment if trades go against you.
Margin Calls: If your account equity falls below a certain level, Webull can issue a margin call, requiring you to deposit more funds or face forced liquidation of your positions.
Interest on Borrowed Funds: You pay interest on any funds you borrow.
Pattern Day Trader (PDT) Rules: If you make 4 or more day trades within 5 business days and your account equity is below $25,000, you can be flagged as a Pattern Day Trader, leading to further restrictions. While separate from GFVs, this is another significant rule for active traders in margin accounts.
Action Point: If you are a frequent trader and consistently find GFVs to be a hindrance, research margin accounts thoroughly. Understand all the risks involved before making the switch. Do not switch to a margin account solely to avoid GFVs without fully comprehending the associated risks.
FAQs: Your Quick Good Faith Violation Q&A
Here are 10 related FAQ questions to solidify your understanding and help you avoid Good Faith Violations on Webull.
How to identify settled vs. unsettled funds on Webull?
Webull's interface typically shows a breakdown of your cash. Look for "Settled Cash" or "Cash Available for Withdrawal" to see the funds that have fully cleared. Other "Available to Trade" figures might include unsettled proceeds.
How to know if my account is a cash or margin account on Webull?
Log into your Webull app or desktop platform, go to your profile/account settings, and look for "Account Type" or similar designation. It will clearly state "Cash Account" or "Margin Account."
How to avoid Good Faith Violations if I day trade frequently?
The best way is to ensure you always have enough settled cash to cover your next purchase, or switch to a margin account (after understanding its risks) where GFV rules don't typically apply.
How to calculate the settlement period for my trades?
For most stocks, ETFs, and options in the US, the settlement period is T+1. This means the trade date plus one business day. So, if you trade on Monday, funds settle on Tuesday. If you trade on Friday, funds settle on Monday (assuming no holidays).
How to recover from a Good Faith Violation on Webull?
Generally, you just need to wait for the funds to settle that caused the violation. If you receive multiple GFVs, you may face restrictions (settled funds only or sell-only). The counter resets on a rolling 12-month basis.
How to prevent being restricted due to too many GFVs?
The most effective way is to strictly adhere to using only settled funds for new purchases, especially if you plan to sell those securities quickly. Understand the T+1 settlement rule and plan your trades accordingly.
How to ensure my deposit has settled on Webull?
Deposit settlement times vary by method. ACH transfers can take 3-5 business days. Wire transfers are generally faster, often settling the same day or next business day. Check your Webull account's cash balance for the "settled" amount.
How to use proceeds from a stock sale without incurring a GFV?
You can use the proceeds for a new purchase immediately. However, if you then sell that new purchase before the original sale's funds have settled (T+1), you will incur a GFV. To avoid this, wait until the original sale settles before selling the new security.
How to upgrade from a cash account to a margin account on Webull?
You can typically initiate an account upgrade request within the Webull app or desktop platform. You'll need to meet specific eligibility criteria, including minimum account equity ($2,000 for margin accounts) and pass a suitability questionnaire.
How to check my GFV history on Webull?
Webull usually provides a record of your violations in your account history or by sending notifications. If you're unsure, contact Webull customer support to inquire about your GFV count.
By diligently following these steps and understanding the nuances of settled funds, you'll be well on your way to a seamless and restriction-free trading experience on Webull! Happy trading!
