A good-faith violation, often shortened to GFV, can occur in a cash account when you purchase a security using unsettled sale proceeds, then sell that purchase before its funding settles. The issue is whether the purchase was fully paid for with settled funds before resale, not whether the trade made money.
FINRA's Frequent Intraday Trading: Understanding the Basics describes this sequence. A cash balance that updates after a sale does not necessarily mean settlement has finished. Our T+1 settlement explanation covers that separate processing step; this article focuses on the cash-account funding rules it affects.
Key Takeaways
- A GFV can arise when a new purchase uses unsettled proceeds and is sold before those proceeds settle.
- Cash available to trade, settled cash, and cash available to withdraw can be different balances.
- T+1 means the next applicable settlement business day, not immediate payment or exactly 24 hours.
- Broker violation labels and restrictions need checking; a published three-violation threshold is not a universal safe allowance.
- A public filing alert does not establish that your account has settled funds or permission to place a transaction.
What does a cash account require?
A cash account requires full payment for purchases rather than a loan from the broker. Securities held in the account are not automatically available cash.
The SEC's Trading in Cash Accounts investor bulletin, updated August 7, 2026, explains the distinction. A broker can accept a purchase when sufficient funds are present, or under a good-faith agreement for prompt full payment before resale.
That does not mean every firm must let you buy with unsettled proceeds. Your account's restrictions and the broker's current policies matter. An accepted order also does not establish that a later sale will satisfy the payment rules.
Our cash-versus-margin discussion explains the borrowing distinction. A GFV is not a maintenance-margin call. Moving to margin is not a recommendation or a consequence-free workaround; margin introduces different obligations and risks.
Why can buying power differ from settled cash?
A broker may include unsettled sale proceeds in an unrestricted account's purchasing balance. Those proceeds are not the same as settled money already available to pay for a purchase.
Fidelity's account-balance FAQs distinguish cash available to trade from settled cash and uncollected deposits. The labels below are a reading guide, not a promise that every brokerage screen uses identical definitions.
| Balance or record | What to check |
|---|---|
| Cash available to trade or buying power | Whether it includes unsettled proceeds or provisional deposit credit |
| Settled cash | How much is available after settlement and existing purchase commitments |
| Cash available to withdraw | Whether settlement, collection holds, or other commitments limit a transfer out |
| Trade confirmation | Execution date, settlement date, amount due, and the account used |
Bank-deposit collection is another process. A recent check or electronic transfer can have a collection hold even when a screen shows a credit. T+1 describes a securities settlement cycle, not a guaranteed bank-deposit availability period. There is no single transfer waiting period that can be assumed across brokers and deposit methods.
What does a good-faith violation look like?
The funding trail matters more than the number of trades. Identify the sale supplying the money, the purchase using it, and whether that money had settled before resale.
The following is a hypothetical illustration using fictional Company A and Company B. Assume ordinary T+1 U.S. stock transactions, no settlement holiday, no additional deposit, and a broker that permits the initial unsettled-proceeds purchase. Ignore fees for clarity.
| Event | Hypothetical account activity | Funding position |
|---|---|---|
| Before Monday's trades | $0 settled cash; Company A shares are fully paid and settled | No settled cash available for a new purchase |
| Monday morning | Company A shares sell for $1,000 | Sale proceeds are scheduled to settle Tuesday |
| Monday afternoon | $600 of Company B shares are purchased using those proceeds | The purchase depends on unsettled funding |
| Later Monday | Company B shares sell for $620 | The funding from Company A has not settled |
This matches the GFV pattern in E*TRADE's cash-account rules explanation. There was enough expected money from Company A to cover the $600 purchase, but it was not settled money when Company B was resold.
The $20 gain does not change that sequence. Nor does the $400 of unused Company A proceeds become settled simply because it was not spent. These amounts illustrate funding mechanics, not a suggested transaction or holding period.
What if the original purchase used settled cash?
A same-day purchase and sale is not automatically a GFV. The SEC's cash-account bulletin gives a permissible example where the purchase was fully funded with existing cash. The elapsed holding time alone does not determine the violation.
For a separate hypothetical example, suppose an account starts with $1,000 in settled cash. A $600 purchase fully paid from that balance leaves $400 before other activity. Selling the purchased shares for $620 the same day does not make the newly generated $620 settled immediately. Reusing and reselling against those new proceeds creates a different funding sequence that requires its own check.
Does T+1 eliminate good-faith violations?
No. A shorter settlement cycle does not make sale proceeds settle instantly. The SEC's T+1 investor bulletin explains the one-business-day standard for covered transactions.
For an ordinary Monday stock sale with Tuesday open for settlement, Tuesday is the scheduled settlement date. Weekends and applicable settlement holidays can change the calendar interval. Other instruments or transaction arrangements may have different schedules.
Use the broker's actual settlement and funding records, not a countdown from when you opened an app notification. The relevant question is whether the money paying for the new purchase has settled, not simply whether that purchase is one day old.
An order's submission time is another separate fact. Our market and limit order guide distinguishes an instruction from an execution. Settlement dates attach to executed transactions, not merely to orders you attempted to place.
Is a GFV the same as freeriding or cash liquidation?
These labels describe related payment problems, but they are not a universal set of mutually exclusive categories. Broker explanations can distinguish situations more narrowly than regulatory investor guidance.
| Term | Commonly described funding problem |
|---|---|
| Good-faith violation | A purchase funded with unsettled proceeds is resold before its funding settles |
| Freeriding | A security is purchased without full payment and its own sale is used to finance the purchase |
| Cash liquidation violation | Other securities are sold too late to supply settled payment for an earlier purchase |
J.P. Morgan Wealth Management's cash-trading explanation describes all three. A cash-liquidation example could involve a Monday purchase due Tuesday, followed by a Tuesday sale of another holding that will not settle until Wednesday. The second sale is too late to supply settled proceeds for Tuesday's payment.
The SEC cash-account bulletin also uses freeriding for an unsettled-proceeds resale sequence resembling the broker GFV example. Do not infer that a GFV label rules out a Regulation T issue, or that every broker will classify the same sequence identically. Ask which transactions, rule, and funding dates support your firm's notice.
What restrictions can follow a violation?
Repeated GFVs can lead to settled-cash-only purchasing restrictions. The threshold and consequences should be read in the applicable broker's policy, not assumed from another firm's website.
For a specific example, Fidelity's Avoiding cash account trading violations, dated March 24, 2026, states that three GFVs within 12 months trigger a restriction. Purchases then require sufficient settled cash before the trade, for 90 calendar days. This is a description of that published policy, not permission to incur two violations.
Regulatory freezes are a related but separate issue. Investor.gov's Freeriding explanation describes a potential 90-day cash-account freeze under Regulation T. During that period, purchases require full payment on the trade date. A broker GFV count is not a guarantee that no other payment-related restriction can arise sooner.
A settled-cash restriction does not necessarily mean an account is completely closed or every sale is prohibited. Read the actual notice for its scope, effective date, funding conditions, and any additional firm restrictions. This article cannot determine your account's status.
Does a deposit or an order warning settle the issue?
Neither a deposit confirmation nor an accepted order guarantees that a funding problem has been resolved. Collection, posting, existing commitments, and the broker's classification still matter.
The amount is only part of the question. The broker also needs to determine whether the funds qualify and when they became available. Adding money after a resale does not establish, by itself, that the firm will remove a recorded violation. Applicable regulatory requirements and broker policy require a case-specific review.
If you receive a warning or notice, useful questions include:
- Which purchase and resale created the alleged violation?
- Which earlier sale or deposit was expected to fund that purchase?
- What were the actual settlement, collection, and posting dates?
- What settled balance remained after other orders and obligations?
- Which restriction applies, and where is its written policy?
Keep confirmations and the notice together when asking the broker to explain or review the record. This is an account-record verification process, not a suggestion to change a position to avoid a restriction.
Where do public filing alerts fit?
Public filing research and personal account funding are different records. If Insider Trading Alerts draw your attention to a reported company-insider transaction, that does not establish anything about your own settled balance.
Insider Trade Alerts organizes public SEC Form 4 information for research. The original Form 4 and its transaction details do not authorize a brokerage purchase or override account restrictions. Issuer means the company, not your broker's funding account.
Price liquidity is different from cash settlement, too. A security can have an available bid and ask quote without your account having settled money to pay for it. Research, execution, and funding each need their own records.
The central distinction is simple: permission to submit a purchase using an available balance is not proof that its funding has already settled. Follow the actual funding trail and your broker's written rules rather than assuming a profitable sale, a fast alert, or T+1 settles that question.
Educational information and public-filing research only. This is not legal or investment advice, or a recommendation to buy, sell, hold, or trade securities. Confirm account-specific requirements with your broker.
Chris Babayans writes about public SEC filings and market research for InsiderTradeAlerts.