What are unsettled funds?

g-ster said: "I keep hearing about unsettled funds on here and Etrade. What should I not do with unsettled funds? Anybody know?"

mordecai8614 said: "Unsettled Funds work like this... Just a scenario.... You spend 1000 dollars and buy a stock, everythings great. You sell the stock at a later date and you did pretty well, the stock went up 20% so you made 200 dollars and the total value when you sell is $1200. You don't initially have those funds, usually it takes 3-4 days before the funds "settle" and you can get that money from your broker or whatever. During the 3-4 days, your funds are unsettled. You can still use that money though to buy stock. So now you can now use that 1200 dollars and go buy another stock, but you cannot sell within the 3-4 days. It's called a "free-ride" and your broker will probably restrict your account. Not even a month ago I was confused about the unsettled funds thing to, it's not that complicated, just a minor inconvienance."

g-ster said: "I would think that whoever you are using to trade stocks, that they wouldnt even let you place an order like that. What if you sell a stock at a loss and then invest in another one and sell it for a profit, would that be the same thing? Are you saying that just the 200 dollars profit you made is the unsettled funds? Or the whole 1200?"

zebbers said: "the whole 1200....trading stocks isn't instant...things need to be cleared just like any other money transaction. Think of it like depositing a check at the ATM....they may credit your balance instantly but the money isn't REALLY cleared for a few days."

thezster said: "There are number of threads on this subject - but I'll go over it one more time. When you buy a stock - you are allowed to sell it at any time. When you sell it (regardless of the amount) - the funds do not "settle" for 3 days from the sell date. Your broker (cause he's a nice guy) will allow you to buy another stock with these funds even if they have not settled (he's trusting the system will be working properly). However - you may not sell that second set of equities until the funds from the first sale are "settled". This is a SEC regulation and your broker faces stiff penalties if he gets caught letting you "free ride". So... to discourage it - you are typically hit with a 90 day restriction from trading with unsettled funds. Some brokers will give you a warning initially - but eventually will slap your hand. Clear??"

jtp2007 said: "How do daytraders go through it?"

thezster said: "We have margin accounts.... the same rules don't apply...."

jtp2007 said: "One last question. When you have a margin account, do you have to buy on margin, or can you have the 'margin' account and not buy on margin."

thezster said: "You can spend only the cash portion of your margin account. When you spend more than your base amount, you start using the margin (borrowed $$)"

jtp2007 said: "So if you have a margin account you dont actually have to buy on margin. You can just add more of your own money so you dont have to ever use theirs?"

thezster said: "That would be true. However - realize that, when you push the button on a 100 share purchase of XYZ stock - the temptation to buy 200 shares (using margin) will be incredible........ "just this once".... :eek:"

jtp2007 said: "I tell myself that a lot. When Im playing acey duecey I tell myself its a 20-25$ limit tonight. I end up going downhill from there. You just have to learn to discipline yourself, which I havent."

kho0ni said: "okay so to sum up everything, i buy a stock for 1000, it goes up 20% so now its at 1200 ($200 profit) i take it out sell or whatever and now have 1200 in my account but its not really there yet casue its got to be settled which takes upto 2-3days so i cant really take the money and put it in my pocket and use it until its been settled but what i can do is put it in another stock but thats about it nothing else until the funds arent settled. another question, do u have to sell the stock in order to get the money or can u just cash out of it like just take the money from the stock. right now in my mind this is how im seeing it, i buy a stock for say about 100, whens its at 50% up, its worth 150 now i cash it right away, now thats 150, 50$ profit, so i can either invest in another company or just wiat 2-3 days til its settled and then use it. correct me if im wrong.:confused:"

dumaman said: "sounds about right, but you cant sell on the second stock that you bought till the funds have settled from the first.. ( i think ) :D"