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Freeriding
In a cash account, an investor must
pay for the purchase of a security before selling it. If an investor buys and
sells a security before paying for it, the investor is “freeriding” which is
not permitted under the Federal
Reserve Board’s
Regulation T and may require
the investor’s broker to “freeze” the investor’s
cash account for 90 days. During this 90-day period, an investor may still
purchase securities with the cash account, but the investor must fully pay for
any purchase on the date of the trade. For more information on the freeriding,
please read our investor bulletin “Trading in Cash
Accounts – Beware of the 90-Day Freeze under Regulation T,” and the cash
account provisions of the
Federal Reserve Board’s
Regulation T.
http://www.sec.gov/answers/freeride.htm
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