Saturday, March 07, 2020

Unsettled Funds Explained

 
This post is a continuation of the $50 a month stock challenge I started October 14, 2019.  Click on, "No Commission Stock Trades", on the right side of the page to read from the start.


 "Unsettled funds", when you "buy or sell" stocks there is a period of time for the transaction to close. Think of it as depositing a check in your checking account and your bank tells you that you have to wait for it to clear before you can withdraw that money.

     Settlement date is today + 2 days (Monday-Friday, minus any bank holidays). Sell on Monday and it will settle on Wednesday. On the settlement date it is now cash, withdraw it or purchase stock with it. That is my preferred method, but that is not the only way.

     "Unsettled funds" is also called "available buying power". You can use "available buying power"(unsettled funds) to purchase stock BUT you can not sell said purchase until it is fully settled.

     This is a government regulation and if you fail to a abide by it, your account will be restricted for 90 days. That restriction simply means, you will not have "available buying power" and will have to wait for "unsettled funds" to "settle" and become cash.  All other account functions are not restricted.

     I you sell "XXX" stock on Monday, it will settled on Wednesday and if you buy "YYY" stock with unsettled funds (available buying power) on Monday, it will also settle on Wednesday (Monday + 2 days) and you can now sell "YYY" stock (selling before Wednesday and your account will be restricted as I mentioned.

    IF you buy that "YYY" stock on Tuesday still using "available buying power" (Monday sale will not settle until Wednesday), you have to wait until Thursday to sell. Purchases made with "unsettled funds" must be fully settled (purchase day + 2 days) before you sell.

    I prefer to use settled funds (cash), because I like complete control over when to sell my purchases.
    So far in this series I have just used this method as I am taking you along slowly and teaching you what I consider the "basics".

   That being said, using "unsettled funds" can be a powerful tools if applied correctly and I will explain that stratergy tomorrow.


 Disclaimer, I am not a professional.




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