For your protection, Scottrade has certain restrictions on when your deposited funds become available for trading.
* Available equity is the total value of cash and or/securities in the account, excluding options positions and deposits with trading restrictions in effect. Note that certain deposits could be subject to additional trading restrictions for up to 10 business days.
Money Direct Deposit Restrictions
Money Direct deposits must be in your Scottrade account for three business days before you can use the funds to:
- Buy stocks under $3
- Buy unlisted stocks
- Buy options
Scottrade reserves the right to impose further purchase restrictions on Money Direct deposits.
Settlement is the date by which a buyer must pay for securities delivered by a seller, or the date by which the transaction must be complete. For stocks and bonds, the settlement date is three business days after the transaction and for options and some mutual funds, the settlement date is the next business day.
Unsettled Funds - Trading in Cash Accounts
Interpretations of Regulation T, which govern how trades are paid for, state that funds from liquidations in cash accounts will not be available to pay for purchases until the settlement date of the sell.
Credit balances in a cash account may be used for purchases.
If the account has settled funds, there are no restrictions as to what may be purchased. If the credit balance is a result of an unsettled sale of securities, certain restrictions may apply.
Unsettled proceeds from existing long positions can be used to purchase additional securities as long as the new purchase is not sold prior to the settlement date of the original sale that generated the proceeds used to finance the purchase.
If it is sold prior to the settlement date of the funding sale without additional funds being deposited, it will be considered a free ride under Federal Reserve Regulation T.
For example, if you sell a security on Monday the 1st, you can use the proceeds to make a purchase prior to the settlement date of Thursday the 4th. However, if you make a purchase before Thursday the 4th then sell that new position before the settlement of Monday's sale, you will then be required to deposit funds to pay for the purchase. If you purchase on Thursday the 4th, you may place a sell order at any time you wish, because the purchase was made with settled funds.
Mutual Funds and Fixed Income Securities can only be purchased with existing or settled funds.
Example 1 - Buying with Settled Funds
On 5/1/XX, you sell 1,000 ABC stock for $10,000. The sale has a settlement date of 5/4/XX. You make a purchase of 1,000 XYZ for $10,000 on 5/4/XX, using the settled proceeds from the sale of 1,000 ABC shares from 5/1/XX. Because the 5/1/XX funds have settled, you are free to use those funds to make purchases of stocks on 5/4/XX, and sell those stocks at any time without having to bring in any additional cash to pay for the purchases.
Example 2 - Buying with Unsettled Funds
You sell 1,000 ABC stock on Monday, 5/1/XX, for $10,000. The sale has a settlement date of 5/4/XX. You then buy 1,000 XYZ for $10,000 on Tuesday, 5/2/XX. Because you have used the proceeds from a sale that has not settled yet to make a purchase, you cannot sell the 1,000 XYZ stock until 5/4/XX. If you sell the securities that were purchased with unsettled proceeds, then you must bring in additional funds to cover the $10,000 purchase. If you do not bring in additional funds, then you will be charged with a free ride.
Example 3 - Options Settlement
You have 10 ABC call options long in your account. You sell the options on Monday, 5/1/XX, generating $300 in proceeds that will be settled the next day. You then use the proceeds to buy $300 worth of XYZ stock, also on 5/1/XX. If you hold those shares of XYZ stock until the options sale proceeds settle on 5/2/XX, then you may sell those shares at any time you want without bringing in any additional money to pay for the purchase. If you sell the XYZ stock the same day that you bought the stock, the option sale would not have settled yet, and you would have to bring in an additional $300 to pay for the purchase of the XYZ stock.
Example 4 - Active Trading
You begin the day with a cash position of $10,000 on Monday 05/01/XX. The first thing you do is a buy of 1,000 ABC stocks for $10,000. Then you sell those securities on the same day generating $10,100, which settles on 05/04/XX, and use the money to buy 1,100 XYZ shares for $10,100.00, again on 05/01/XX. If you hold the 1,100 XYZ shares until Thursday 05/04/XX, you can then sell those 1,100 XYZ shares whenever you want without having to bring in any additional funds. If you sell those 1,100 XYZ shares before Thursday 05/04/XX, then the 05/01/XX sale of 1,000 ABC would not have settled yet and you could not use those proceeds to pay for the 05/01/XX purchase of 1,100 XYZ shares. In this case, you would need to bring in additional money to pay for that purchase.
Example 5 - Mutual Funds
You begin the day selling $5,000 of a Mutual Fund (ABCDX) on 05/01/XX. This Fund has a settlement date of 05/04/XX. You wish to purchase $5,000 of DEFGX on 05/01/XX using the ABCDX proceeds. This Mutual Fund could not be purchased until 05/04/XX because the ABCDX has not settled.
Options involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Application and Agreement, Brokerage Account Agreement, and Characteristics and Risks of Standardized Options (available at your local Scottrade branch office or from the Options Clearing Corporation at 1-888-OPTIONS or by visiting www.888options.com). All option accounts require prior approval by Scottrade. Market volatility, volume, and system availability may impact account access and trade execution. Supporting documentation for any claims will be supplied upon request.
Investors should consider the investment objectives, risks, charges, and expenses of mutual fund carefully before investing. A prospectus contains this and other information about the fund and is available through www.scottrade.com or through a Scottrade branch office. The prospectus should be read carefully before investing.
Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. Scottrade's margin agreement, available at scottrade.com or through a Scottrade branch office, contains the Margin Disclosure Statement and information on our lending policies, interest charges and the risks associated with margin accounts.