Buying Power in Cash Accounts


Settled Funds, Unsettled Funds and Buying Power in Cash Accounts

 

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(A) Buying Power in a cash account is the maximum dollar amount that is available for entering trades. Settled Funds, Unsettled Funds-Avail. and Unsettled Funds-Unavail. are used to determine a cash account’s buying power.

(B) Settled Funds are settled proceeds from the sale of fully paid for securities and cleared funds from incoming ACH deposits, checks, wire transfers, transfers received from other external and internal brokerage accounts. Settled funds are immediately available in the Buying Power.

 

Example of Settled Funds:

A customer purchased 100 shares of FB stock on Wednesday July 10, 2013. The total cost of the purchase was $2,574.00. The same 100 FB shares were later sold on Tuesday July 16, 2013. The proceeds generated from the sale were $2,635.00. The sale of the shares settled on Friday July 19, 2013. The $2,635.00 became settled funds on Friday July 19, 2013. Settlement for a stock is trade date plus three business days (T +3).

(C) Unsettled Funds –Avail. are unsettled proceeds from the sale of fully paid for settled securities. Funds are unsettled funds-avail. if the position that is liquidated is settled. Unsettled funds-avail. are immediately available for use to enter trades, but closing the position before the funds have settled can result in a Good Faith (GF) Violation being issued.

 

Example of Unsettled Funds-Avail.:

A customer purchased 100 shares of BAC stock on Tuesday July 16, 2013. The total cost of the purchase was $1,394.00. The same 100 BAC shares were later sold on Tuesday August 13, 2013. The generated proceeds from sale were $1,453.00. These proceeds were immediately made available to the buying power because the 100 shares of BAC stock were settled. These proceeds, while available to trade, were unsettled until Friday August 16, 2013. Settlement for a stock is trade date plus three business days (T +3).

(D) Unsettled Funds-Unavail. are proceeds from the sale of unsettled securities that have yet to settle. Funds are unsettled funds-unavail. if the position that is liquidated is unsettled. Unsettled funds-unavail. are not available for trading until the closing trade has settled.

 

Example of Unsettled Funds-Unavail.:

A customer purchased 100 shares of MSFT stock on Monday April 22, 2013. The total cost of the purchase was $3,420.00. The same 100 MSFT shares were later sold on Tuesday April 23, 2013. The sale generated proceeds of $3,450.00. These proceeds are not available in the buying power until Friday April 26, 2013 because the shares were sold before the purchase of the shares was settled. Settlement for a stock trade is trade date plus three business days (T + 3).

 

Example: Transactions Settled Funds, Unsettled Funds-Avail., Unsettled Funds-Unavail. and Buying Power

A cash account is funded with a $5,000 wire transfer on Monday August 12, 2013.

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150 shares XYZ stock is purchased on Monday August 12, 2013 with a total cost of $4,995.00. XYZ stock closing price for Monday August 12, 2013 is same as the purchase price.

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XYZ stock is held until Thursday August 15, 2013 which is three business days from the trade date and 150 shares XYZ stock is sold that same day which generated proceeds of $5,100.

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The same day 200 shares ABC stock is purchased with a total cost of $4,900.

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The next day, Friday August 16, 2013, 200 shares ABC stock is sold which generated proceeds of $4950. This account is issued a Good Faith (GF) Violation because the funds used to purchase the 200 shares ABC stock were unsettled.

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The proceeds from the sale of the 200 shares ABC stock are not available in the buying power until Wednesday August 21, 2013 when the trade settles which is 3 business days from the sale’s trade date. On Wednesday August 21, 2013 the Account Info appearance.

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