Free Riding - Free Riding Violation

Free Riding Violation

The Securities and Exchange Commission states "In a cash account, you must pay for the purchase of a stock before you can sell it. If you buy and sell a stock before paying for it, you are free riding, which violates the credit extension provisions of the Federal Reserve Board. If you free ride, your broker must freeze your account for 90 days."

If someone is trading rapidly and using all the cash available in the account to buy and sell, that person will likely get a "freeriding violation." Freeriding is subject to a mandatory 90-day cash-up-front restriction. Clients can still trade, but they lose the ability to make purchases with unsettled sale proceeds.

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