Buying Power in Cash Accounts
Buying Power in a cash account is the maximum dollar amount that is available for entering trades. Settled Funds, Unsettled Funds-Available and Unsettled Funds-Unavailable are used to determine a cash account’s buying power.
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).
Unsettled Funds –Available are unsettled proceeds from the sale of fully paid for settled securities. Funds are unsettled funds-available if the position that is liquidated is settled. Unsettled funds-available 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-Available:
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, are unsettled until Friday August 16, 2013. Settlement for a stock is trade date plus three business days (T +3).
Unsettled Funds-Unavailable are proceeds from the sale of unsettled securities that have yet to settle. Funds are unsettled funds-unavailable if the position that is liquidated is unsettled. Unsettled funds-unavailable are not available for trading until the closing trade has settled.
Example of Unsettled Funds-Unavailable:
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).