What is a Good Faith Violation on Webull? And What Happens?

Ruben Leija

What is a Good Faith Violation, Exactly?

A good faith violation is when a trader or an investor buys and sells a security asset – such as options or equity – with unsettled funds.

Imagine you have $10,000 in your Webull brokerage account. You’ve used $5,000 of that cash to buy a stock on Monday, only to sell them on Tuesday for a total $5,500. Those $5,500 go to the unsettle bucket, and it takes 2 days for that cash to go to the settle bucket.

Now, let’s say it’s Wednesday, and you see a juicy opportunity to buy another stock and you use those unsettled $5,500. On Webull, you’ll get a warning message that if you sell the day before those funds are settle, you will commit a good faith violation.

Good faith violations can add restrictions to your account such as:

Suspending you from day trading for a period of time.
Force to sale all securities.
Account freeze.
Additional charge fees.

Now, the consequences for a good faith violation may differ per brokerage firm, but it’s important for the trader or investor to understand the rules and regulations of a good faith violation.

What Happens if You Get One or More Good Faith Violations on Webull

If you incur 3 Good Faith Violations on Webull in a 12 month period, you will most likely lead to your brokerage firm placing restrictions on your Webull cash account that will only allow you to buy securities or options contracts with settled funds vs settled or available. These restrictions usually last 90 days.

Other brokerages will then take further steps outlined in their TOS (terms of service) if these violations become habitual.

How to Avoid Getting Good Faith Violations on Webull

Here are a few methods that may help a trader or investor avoid getting hit with a good faith violation.

1. Understand the Settlement Times

I know, this sounds too easy, but understanding the settlement types for different security types will save you from committing a good faith violation.

Here are the different settlements times for different security types:

T+1: It takes 1 business days for the cash to settle when the security type are options.
T+2: It takes 2 business days for the cash to settle when the security type are equity.
T+3: It takes 3 business days for the cash to settle when the security type are bonds.

2. Only use Settle Funds for Purchases

The next best solution for cash accounts, is to only use settle funds. Only use settle funds and you’ll never commit a good faith violation.

Also, most modern brokerages will show you your settle and unsettle cash. Here’s an example of Webull displaying that information.

3. Try Swing Trading

Good faith violations is all about day trading with unsettled funds, and if you can avoid day trading you can avoid getting a good faith violation.

4. Consider a Margin Account

If you would like to have unlimited trades with Webull trying switching your cash account to a margin account.

With a margin account, you do not have to wait for unsettled cash to be settled, and you will never get hit with a good faith violation.

The SEC has a requirement for investors and traders to have at least $25,000 account value if they plan to have day trade more than three days in a rolling five-day period. If you attempt to day trade more than three days with an account value less than $25,000 then you will not get a good faith violation but with a pattern day trader.

To Sum It Up

Good faith violations exist to protect the market and the investor or trader. Good faith violations also help brokerage firms to help reduce risk securities in the market and promote fair trading.