Webull Good Faith Violation Explained

When it comes to investing in the stock market, it's important to understand the rules and regulations that govern cash accounts.

One such rule is the Good Faith Violation (GFV), which occurs when proceeds from selling securities purchased with unsettled funds are used to buy another security before the initial purchase settles. Simply put, a GFV happens if a cash account opens a position using unsettled funds and then closes that position before the funds have settled, or reuses unsettled proceeds to buy more securities before settlement.

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Settled vs Unsettled Funds

• In a cash account, investors must pay the full amount for securities they purchase upfront with settled funds.
• In the U.S. equity markets, stock trades settle in 2 business days (known as T+2), meaning funds from sales remain unsettled until two business days after the trade date.
• Funds from sales are considered unsettled during this period and should not be reused to purchase other securities if the new purchase might be sold before settlement to avoid GFVs.
• Investors should always differentiate unsettled funds from fully settled funds and wait for the latter before opening or closing positions that rely on those proceeds.

What Is a Good Faith Violation?

A Good Faith Violation (GFV) occurs when you:

• Buy a stock using unsettled funds (proceeds from a previous sale that have not yet settled),
• Sell that stock before the initial purchase settles,
• Then use the proceeds from that sale to buy another security before settlement of the first purchase.

This sequence violates cash account trading regulations because it essentially represents the improper reuse of unsettled funds in multiple trades.

To avoid GFVs, investors should ensure they have sufficient settled funds before opening new positions, especially if planning to sell those positions quickly.

It is important to note that deposits or liquidations do not immediately remove existing GFVs. Each GFV typically expires automatically after 12 months from its trade date. Investors need to monitor their trading activity carefully over a full year to prevent accumulations of violations.

Webull’s Enforcement and Penalties for GFVs

Webull, like other brokerages, enforces GFV policies strictly for cash accounts:

Furthermore, Webull retains the right to suspend accounts proactively if violations are detected, pending investigation or further action.

Remember, these penalties are designed to encourage responsible trading and adherence to settlement rules. Simply adding more funds or liquidating positions does not remove penalties once a GFV has been incurred.

Practical Tips to Avoid GFVs on Webull

• Use Webull’s app notifications and tools to track settlement status of your funds. The platform may warn you if your actions risk a GFV.
• Maintain a careful fund tracking strategy to ensure only settled cash is used to open positions that might be sold before settlement.
• Wait for at least two business days after selling securities before using proceeds to buy or sell additional securities.
• Review your trading history regularly to detect any potential GFV risks or warnings — updated tutorials for 2025 show how to do this efficiently.

Day Trading and Good Faith Violations: What’s the Difference?

Webull cash accounts allow unlimited day trading (buying and selling the same security on the same day) without the Pattern Day Trader (PDT) rule restrictions that apply to margin accounts. However, this flexibility comes with risks:

• Because cash accounts use settled funds only, repeatedly using unsettled funds to day trade can cause multiple GFVs.
• Margin accounts with less than $25,000 face PDT rules restricting day trades to 3 per rolling 5-day period, but this does not apply to cash accounts.

This distinction is crucial for new investors to understand to avoid penalties and restrictions from disregarding settlement rules.

Common Scenarios That Cause Good Faith Violations

• You sell shares, then immediately use those unsettled sale proceeds to buy another stock and sell it before the initial sale settles.
• You buy a stock using unsettled funds, sell it right away, and reuse those proceeds to buy again before settlement completes.
• Repeatedly day trading on a cash account relying on unsettled funds despite warnings from the brokerage platform.

Conclusion

In summary, a Good Faith Violation (GFV) is a critical rule governing cash account trading, preventing the reuse of unsettled funds for multiple purchases and sales within short settlement periods.

Violating GFV rules may lead to restrictions such as 90-day settled cash-only trading limits or even account closure under Webull’s 2025 policies.

To trade responsibly and avoid GFVs, investors must patiently wait for the full settlement (T+2) of funds before reusing sale proceeds, leverage Webull’s tools for monitoring settlement status, and understand the difference between cash account trading and margin account PDT restrictions.