Some trading practices can lead to restrictions on your account. This information can help your transactions go off without a hitch.
8 minute read Orders and trades Orders and trades Orders and tradesThis holds the money you use to buy securities, as well as the proceeds whenever you sell.
Shares acquired in one transaction. You can own multiple lots of an investment if you acquired shares of the same security at different times.
A single unit of ownership in a mutual fund or an exchange-traded fund (ETF) or, for stocks, a corporation.
The proceeds from a sale until the close of business on the settlement date of a trade. Money then sweeps into the settlement fund and the credit is removed.
We want your trades to proceed as smoothly and quickly as possible. But we can restrict trading in your accounts if your transactions violate industry regulations and the Vanguard Brokerage Account Agreement.
Here are some common mistakes investors make:
The online trading platform will generate a warning if your transaction will violate industry regulations, so pay close attention to the message.
Engaging in freeriding and trade liquidations will limit your flexibility to make new purchases.
Here are the details of each violation.
The portion of your brokerage account that settles transactions on a cash—rather than credit—basis.
The amount of money in an account calculated by subtracting your debits from the sum of: the opening balance in your settlement fund; proceeds from securities sales settling on that day; cash from securities, such as bonds and CDs (certificates of deposit) that are maturing on that day; and capital gains, dividends, and interest received.
The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction.
Freeriding occurs when you buy and sell securities in a cash account without covering the initial purchase.
You have $3,000 in your settlement fund. You purchase a stock for $4,000. Later that day, you sell the stock for $4,500 without ever paying for the $4,000 purchase. In this instance you incur a freeride because you have funded the purchase of Stock X, in part, with proceeds from the sale of Stock X.
You have $3,000 in your settlement fund. You purchase Stock X for $3,000 and Stock Y for $1,000. Later that day, you sell Stock X shares you have purchased without bringing in additional cash. In this instance you incur a freeride since the total amount owed for purchases made that day ($4,000) exceeds the settled cash you had to begin the day and you sold one of the securities purchased that same day.
You have a zero balance in your settlement fund and no pending credits or sales proceeds. On Monday, you sell stock A. Cash proceeds will arrive in your account on Tuesday (the day after the trade was placed). Also on Monday, you buy stock B. You must pay for it on Tuesday (the day after the trade was placed). However, on Monday, you sell stock B. Because the sale of stock A hasn't yet settled, you paid for stock B with unsettled funds.
Your account is restricted for 90 days. During this time, you must have settled funds available before you can buy anything.