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> So my next question is, why is that? Don't most brokers allow you to continue trading before settlement? (so someone has to put collateral for that) I guess

by tonfa 6y ago

> So my next question is, why is that? Don't most brokers allow you to continue trading before settlement? (so someone has to put collateral for that) I guess most traders would complain if they had to wait two days after every trade :) Edit, maybe best is to look at the explanation from Money Stuff: > But at some level of volatility things break down. If a stock is really worth $400 on Monday and $20 on Wednesday, there is a risk that a lot of the people who bought it on Monday won’t show up with cash on Wednesday. Something very bad happened to them between Monday and Wednesday; some of them might not have made it. You need to make sure the collateral is sufficient to cover that risk.

deleted 6y ago
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Miner49er 6y ago
> Don't most brokers allow you to continue trading before settlement? (so someone has to put collateral for that) Sure, but I wonder why RH didn't just change their rules to being that you won't be able to trade instantly with any sold GME, and then used client funds as collateral? This seems much better than stopping buying altogether. I suppose maybe the code wasn't in place for something like this, idk.
- gruez 6y ago
  >and then used client funds as collateral? check the edit in the parent's comment. It's expressly prohibited.
- tonfa 6y ago
  > and then used client funds as collateral? But that's not necessarily settled right? E.g. client sells AMC, then buys GME. At this point RH doesn't have the cash to for it (the settlement should clear, but it still needs to come up with the collateral). (I'm not an expert so take it with a grain of salt, but that makes at least some sense :))
- bilbo0s 6y ago
  and then used client funds as collateral Huh? You realize that's illegal right?
  - Miner49er 6y ago
    Is it? And if so, why?
hinkley 6y ago
> Don't most brokers allow you to continue trading before settlement? Hasn't that changed a bit though? I'm trying to recall what the policy change alert I got a few years ago. Something about you can buy shares with proceeds of unsettled sales, but if you sell the new shares before the previous sale is settled, your account can get flipped into some state where you have reduced trading abilities for a period of time. 30 days? It was implied that "the SEC made us do it". I think it was meant to put the kibosh on day trading. You can still day trade, but your returns are cut dramatically by requiring a larger cash position.
- rufus_foreman 6y ago
  Cash account violations, there are a few different variations. Here's a Fidelity page that explains them: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t....

by tonfa 6y ago

deleted 6y ago

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Miner49er 6y ago

> Don't most brokers allow you to continue trading before settlement? (so someone has to put collateral for that) Sure, but I wonder why RH didn't just change their rules to being that you won't be able to trade instantly with any sold GME, and then used client funds as collateral? This seems much better than stopping buying altogether. I suppose maybe the code wasn't in place for something like this, idk.

gruez 6y ago
>and then used client funds as collateral? check the edit in the parent's comment. It's expressly prohibited.
tonfa 6y ago
> and then used client funds as collateral? But that's not necessarily settled right? E.g. client sells AMC, then buys GME. At this point RH doesn't have the cash to for it (the settlement should clear, but it still needs to come up with the collateral). (I'm not an expert so take it with a grain of salt, but that makes at least some sense :))
bilbo0s 6y ago
and then used client funds as collateral Huh? You realize that's illegal right?
- Miner49er 6y ago
  Is it? And if so, why?

hinkley 6y ago

> Don't most brokers allow you to continue trading before settlement? Hasn't that changed a bit though? I'm trying to recall what the policy change alert I got a few years ago. Something about you can buy shares with proceeds of unsettled sales, but if you sell the new shares before the previous sale is settled, your account can get flipped into some state where you have reduced trading abilities for a period of time. 30 days? It was implied that "the SEC made us do it". I think it was meant to put the kibosh on day trading. You can still day trade, but your returns are cut dramatically by requiring a larger cash position.

rufus_foreman 6y ago
Cash account violations, there are a few different variations. Here's a Fidelity page that explains them: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations https://www.fidelity.com/learning-center/trading-investing/t....