Free riding (also known as Freeriding or Free-riding) is a term used in the stock-trading world to describe the practice of buying shares or other securities without actually having the capital to cover the trade. This is possible when recently bought or sold shares are unsettled, and therefore have not been paid for.
Since stock transactions usually settle after three business days, a crafty trader can buy a stock and sell it the following day (or the same day), without ever having sufficient funds in the account.
Read more about Free Riding: Trade Day + 3 Days, Free Riding Violation, S.E.C. Enforcement Actions, Good Faith and Free Riding, Liquidation and Free Riding, Economics
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