If a Share you have purchased is sold prior to being paid for with settled funds, a Good Faith Violation (GFV) has occurred.
If you receive three (3) GFV’s in a 12-month period you will be restricted to purchasing Shares with only settled funds for a period of 90 days.
Further to this, any additional trades that will result in a GFV or are greater than $1000 in value may be canceled.
Remembering a GFV occurs when a stock is sold, let’s use some examples:
Example 1
Customers US Wallet balance = $0.00
On Monday morning this customer sells Y stock netting $500 (yay!).
On Monday afternoon, the then uses the $500 to buy $500 worth of X stock.
If the X stock is sold prior to Wednesday (settlement date of the Y sale), a GFV would apply as the X stock is not considered fully paid prior to sale.
Example 2:
Customers US Wallet balance = $500
On Monday morning, a purchase is made for $500 of X stock.
On Monday mid-day, the customer sells the X stock for $550.
Near market close, the customer purchases $550 of Y stock.
At this point no GFV has occurred because the customer had sufficient funds for the purchase of X.
But, if Y is sold prior to the settlement of X stock then a GFV will have occurred.
Example 3:
Customers US Wallet balance = $1000
Customer also has $500 available from unsettled activity after selling stock on Friday.
On Monday morning, the customer purchases $1500 of Y stock.
A GFV occurs if this customer sells the Y stock on Monday.
The GFV occurs as the purchase of Y is not considered fully paid, because the $500 proceeds from the sale on the previous Friday don’t settle until Tuesday.
We get this one can be a little confusing and hope this guide has helped you.