Author Topic: Using unsettled cash to buy & hold stocks?  (Read 796 times)

mk4kc5cmc4

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Using unsettled cash to buy & hold stocks?
« on: November 17, 2022, 08:55:51 AM »
Probably a dumb question, but something I've been wondering about. When I transfer money from my bank account to my brokerage account, it takes a couple of days to 'settle'. I always wait until the cash is settled to buy anything, because a warning about Good Faith violations pops up if you try to buy anything with unsettled cash. I understand the warning, but it seems only related to *selling the thing you are buying* before the cash settles. So my question is - if I intend to just hold the stock indefinitely, can I purchase right away before the cash settles?

Thanks in advance for any advice!

BicycleB

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Re: Using unsettled cash to buy & hold stocks?
« Reply #1 on: November 17, 2022, 09:58:50 AM »
I think you can.

I've done a similar thing myself, and went through the same thought process. It's worked fine so far. Specifically, you get similar messages when waiting for funds to settle from a sale of stock within the same brokerage, so I read those messages, bought new stock with unsettled funds (which were classified as "available to trade" but not "settled"), held the new stock until after the funds settled, and was fine as far as I know. Strictly speaking some of the cases involved ETFs rather than stock but I think the same rules apply. Then again I'm new to selling stock (and ETFs) and will defer to more experienced comment.

One time I accidentally tried to sell the new stock before the old funds settled, and luckily the brokerage gave a different warning message that the sale WOULD result in a Good Faith violation; I cancelled the proposed transaction immediately. As I far as I know, that was no harm no foul.
« Last Edit: November 17, 2022, 10:01:31 AM by BicycleB »

mk4kc5cmc4

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Re: Using unsettled cash to buy & hold stocks?
« Reply #2 on: November 17, 2022, 10:12:46 AM »
I think you can.

I've done a similar thing myself, and went through the same thought process. It's worked fine so far. Specifically, you get similar messages when waiting for funds to settle from a sale of stock within the same brokerage, so I read those messages, bought new stock with unsettled funds (which were classified as "available to trade" but not "settled"), held the new stock until after the funds settled, and was fine as far as I know. Strictly speaking some of the cases involved ETFs rather than stock but I think the same rules apply. Then again I'm new to selling stock (and ETFs) and will defer to more experienced comment.

One time I accidentally tried to sell the new stock before the old funds settled, and luckily the brokerage gave a different warning message that the sale WOULD result in a Good Faith violation; I cancelled the proposed transaction immediately. As I far as I know, that was no harm no foul.


Yeah, this is exactly what I thought/hoped. I think I'm going to give it a whirl, seems like even if there's an issue you get ~3 warnings before anything happens. Thanks for the input!

Rob_bob

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Re: Using unsettled cash to buy & hold stocks?
« Reply #3 on: November 17, 2022, 11:16:05 AM »
I have a margin account so this type of thing is never an issue.  Want to buy something, start a funds transfer then make the trade.  Want to take cash out, sell something then transfer funds.  No issues, no warnings, happy camper  :)

yachi

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Re: Using unsettled cash to buy & hold stocks?
« Reply #4 on: November 21, 2022, 08:15:21 AM »
Probably a dumb question, but something I've been wondering about. When I transfer money from my bank account to my brokerage account, it takes a couple of days to 'settle'. I always wait until the cash is settled to buy anything, because a warning about Good Faith violations pops up if you try to buy anything with unsettled cash. I understand the warning, but it seems only related to *selling the thing you are buying* before the cash settles. So my question is - if I intend to just hold the stock indefinitely, can I purchase right away before the cash settles?

Thanks in advance for any advice!

Yes, I do it all the time.  I do it in my IRA accounts, and they can't have margin.  Once I accidentally sold something too soon that I had purchased with unsettled funds.  I got something like a temporary trading restriction, so it wasn't even that bad.  What you're thinking of doing is far from the penalty line.

PDXTabs

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Re: Using unsettled cash to buy & hold stocks?
« Reply #5 on: November 21, 2022, 08:30:10 AM »
I've done it before!

LightStache

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Re: Using unsettled cash to buy & hold stocks?
« Reply #6 on: November 22, 2022, 03:24:13 PM »
Yep that's totally fine. The brokerage executes the trade based on good faith that the transfer will settle successfully. If they didn't want you to do that, they wouldn't allow you to make purchases beyond your settled funds, which is a restriction they can put in place after trade violations.

The warning is just educational. In fact I'm not even sure if I get one. I'll have to pay attention when I do my monthly buys on Dec. 1.