Free Riding
Can anyone explain this to me? If i buy a stock i have to wait 3 days before i can sell it?
Freeriding (spelled as one word):
In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding, which violates the credit extension provisions of the Federal Reserve Board. If you freeride, your broker must "freeze" your account for 90 days. This means that while you may still trade, you must fully pay for any purchase on the date you trade during the 90-day freeze. In other words, you won't get the benefit of settling your trades in three days.
In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding, which violates the credit extension provisions of the Federal Reserve Board. If you freeride, your broker must "freeze" your account for 90 days. This means that while you may still trade, you must fully pay for any purchase on the date you trade during the 90-day freeze. In other words, you won't get the benefit of settling your trades in three days.
Perhaps I can draw an analogy with buying and selling a car.
You find a car and tell the seller that you will buy and you take the car (without paying for it) and go off and sell that car. Then you take the money from the sale and go back to the person that you bought the car off and pay them.
That's why freeriding is illegal.
You find a car and tell the seller that you will buy and you take the car (without paying for it) and go off and sell that car. Then you take the money from the sale and go back to the person that you bought the car off and pay them.
That's why freeriding is illegal.
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