Can my broker lock my cash account if I try to use the money from a stock sale during the three-day settlement period?
Brokerage firms must settle funds promptly, but there's no explicit definition for this in U.S. federal law. See for example, this article on settling trades in three days. Wikipedia also has a good write-up on T+3. It is common practice, however. It takes approximately three days for the funds to be available to me, in my Canadian brokerage account. That said, the software itself prevents me from using funds which are not available, and I'm rather surprised yours does not. You want to be careful not to be labelled a pattern day trader, if that is not your intention. Others can better fill you in on the consequences of this. I believe it will not apply to you unless you are using a margin account. All but certainly, the terms of service that you agreed to with this brokerage will specify the conditions under which they can lock you out of your account, and when they can charge interest. If they are selling your stock at times you have not authorised (via explicit instruction or via a stop-loss order), you should file a complaint with the S.E.C. and with sufficient documentation. You will need to ensure your cancel-stop-loss order actually went through, though, and the stock was sold anyway. It could simply be that it takes a full business day to cancel such an order. Here's how this works in the United States. There's no law regarding your behavior in this matter and you haven't broken any laws. But your broker-dealer has a law that they must follow. It's documented here: The issue is if you buy stock before your sell has settled (before you've received cash) then you're creating money where before none existed (even though it is just for a day or two). The government fears that this excess will cause undue speculation in the security markets. The SEC calls this practice freeriding, because you're spending money you have not yet received. In summary: your broker is not allowed to loan money to an account than is not set-up for loans; it must be a margin account. People with margin account are able to day-trade because they have the ability to use margin (borrow money). Margin Accounts are subject to Pattern Daytrading Rules. The Rules are set forth by FINRA (The Financial Industry Reporting Authority) and are here:
Keeping your “big emergency” fund in stocks if you have 12 months income saved is OK.   However you should keep your “small emergency” fund in cash.   (However I find that even my stock broker accounts have some cash in them, as I like to let the dividends build up enough to make the dealing charges worthwhile.  You don’t wish to be forced to sell at a bad time due to your boiler needing replacing or your car breaking down.     However if you lost your job in the same week that your boiler broke down and your car needed replacing then being forced to sell stocks at a bad time is not much of an issue. Also if you are saving say 1/3 of your income each month and you have a credit card with large unused credit limit that is paid of each month, then most “small emergency” that are under 2/3 of your monthly income can be covered on the credit card with little or no interest charges. One option is to check you bank balance on the day after you are paid, and if it is more than 2x your monthly income, then move some of it to long term savings, but only if you tend to spend a lot less then you earn most months. "First of all, not all brokers allow trading during pre-market and post-market.  Some brokers only allow trading during the regular hours (9:30am - 4pm ET). Second of all, while you can place orders using limit orders and market orders during regular trading hours, you can only use limit orders during pre-market and post-market.  This is because the liquidity is much lower during pre-market and post-market, and using market orders could result in some trades filling at horrible prices.  So brokers don't allow using market orders outside of regular trading hours. Third, some brokers require you to specify that you want your order to be executed during pre-market or post-market.  For example, my broker allows me to specify either ""Day"" or ""Ext"" for my orders.  ""Day"" means I want my order to execute only during regular trading hours, and ""Ext"" means I want my order to execute at any time - pre-market, regular trading hours, or post-market. Finally, if your broker allows pre/post market trading, and you place a limit order while specifying ""Ext"", then your trade can happen in real-time during pre-market or post-market.  Per your example, if a stock is trading at $5 at 8am, and you put in a limit order (while specifying ""Ext"") to buy it at $5 at 8am, then your order will execute at that time and you will buy that stock at 8am." "You don't. No one uses vanilla double entry accounting software for ""Held-For-Trading Security"".  Your broker or trading software is responsible for providing month-end statement of changes.  You use ""Mark To Market"" valuation at the end of each month.  For example, if your cash position is -$5000 and stock position is +$10000, all you do is write-up/down the account value to $5000.  There should be no sub-accounts for your ""Investment"" account in GNUCash.  So at the end of the month, there would be the following entries:" Purchases and sales from the same trade date will both settle on the same settlement date. They don't have to pay for their purchases until later either. Because HFT typically make many offsetting trades -- buying, selling, buying, selling, buying, selling, etc -- when the purchases and sales settle, the amount they pay for their purchases will roughly cancel with the amount they receive for their sales (the difference being their profit or loss). Margin accounts and just having extra cash around can increase their ability to have trades that do not perfectly offset. In practice, the HFT's broker will take a smaller amount of cash (e.g. $1 million) as a deposit of capital, and will then allow the HFT to trade a larger amount of stock value long or short (e.g. $10 million, for 10:1 leverage). That $1 million needs to be enough to cover the net profit/loss when the trades settle, and the broker will monitor this to ensure that deposit will be enough. As the record date is 7th August, you need to hold stocks on the 7th August closing. You need not hold it till 2nd Sept. The list as taken on 7th August would be processed and instructions given to Bank and the dividends credited by 1st Sept.  Edit: To Clarify Victor's comment Typically from the time one sells the stocks to the time it actually gets transferred has a clearing cycle. Most stock exchanges have 2 or 3 days cycles. i.e. if I sell the stock today, it is still in my name. The money is still with the buyer. On Day 1, the positions are arrived at. On Day 2 the stock gets credited to the buyer and the funds gets credit to seller.  As the question was specific whether to hold the stock till 7th or 22nd Sept, my initial answer was simple. The illustration by Victor is more accurate. "I have received a response from SIPC, confirming littleadv's answer: For a brief background, the protections available under the Securities   Investor Protection Act (""SIPA""), are only available in the context of   a liquidation proceeding of a SIPC member broker-dealer and relate to   the ""custody"" of securities and related cash at the SIPC member   broker-dealer. Thus, if a SIPC member broker-dealer were to fail at a   time when a customer had securities and/or cash in the custody of the   SIPC member broker-dealer, in most instances it would be SIPC's   obligation to restore those securities and cash to the customer,   within statutory limits. That does not mean, however, that the   customer would necessarily receive the original value of his or her   purchase. Rather, the customer receives the security itself and/or the   value of the customer's account as of the day that the liquidation   commenced. SIPC does not protect against the decline in value of any   security. In a liquidation proceeding under the SIPA, SIPC may advance   up to $500,000 per customer (including a $250,000 limit on cash in the   account). Please note that this protection only applies to the extent that you   entrust cash or securities to a U.S. SIPC member. Foreign broker   dealer subsidiaries are not SIPC members. However, to the extent that   any assets, including foreign securities, are being held by the U.S.   broker dealer, the assets are protected by SIPC. Stocks listed on the   LSE are protected by SIPC to the extent they are held with a SIPC   member broker dealer, up to the statutory limit of $500,000 per   customer. As I mentioned in the comments, in the case of IB, indeed they have a foreign subsidiary, which is why SIPC does not cover it (rather they are insured by Lloyds of London for such cases)." "The difficulty is that you are thinking of a day as a natural unit of time.  For some securities the inventory decisions are less than a minute, for others, it can be months.  You could ask a similar question of ""why would a dealer hold cash?"" They are profit maximizing firms and, subject to a chosen risk level, will accept deals that are sufficiently profitable.  Consider a stock that averages 1,000 shares per day, but for which there is an order for 10,000 shares.  At a sufficient discount, the dealer would be crazy not to carry the order.   You are also assuming all orders are idiosyncratic.  Dividend reinvestment plans (DRIP) trigger planned purchases on a fixed day, usually by averaging them over a period such as 10 days.  The dealer slowly accumulates a position leading up to the date whenever it appears a good discount is available and fills the DRIP orders out of their own account.  The dealer tries to be careful not to disturb the market leading up to the date and allows the volume request to shift prices upward and then fills them." "Securities clearing and settlement is a complex topic - you can start by browsing relevant Wikipedia articles, and (given sufficient quantities of masochism and strong coffee) progress to entire technical books. You're correct - modern trade settlement systems are electronic and heavily streamlined.  However, you're never going to see people hand over assets until they're sure that payment has cleared - given current payment systems, that means the fastest settlement time is going to be the next business day (so-called T+1 settlement), which is what's seen for heavily standardized instruments like standard options and government debt securities. Stocks present bigger obstacles.  First, the seller has to locate the asset being sold & make sure they have clear title to it... which is tougher than it might seem, given the layers of abstraction/virtualization involved in the chain of ownership & custody, complicated in particular by ""rehypothecation"" involved in stock borrowing/lending for short sales... especially since stock borrow/lending record-keeping tends to be somewhat slipshod (cf. periodic uproar about ""naked shorting"" and ""failure to deliver""). Second, the seller has to determine what exactly it is that they have sold... which, again, can be tougher than it might seem.  You see, stocks are subject to all kinds of corporate actions (e.g. cash distributions, spin-offs, splits, liquidations, delistings...)  A particular topic of keen interest is who exactly is entitled to large cash distributions - the buyer or the seller?  Depending on the cutoff date (the ""ex-dividend date""), the seller may need to deliver to the buyer just the shares of stock, or the shares plus a big chunk of cash - a significant difference in settlement.  Determining the precise ex-dividend date (and so what exactly are the assets to be settled) can sometimes be very difficult... it's usually T-2, except in the case of large distributions, which are usually T+1, unless the regulatory authority has neglected to declare an ex-dividend date, in which case it defaults to standard DTC payment policy (i.e. T-2)... I've been involved in a few situations where the brokers involved were clueless, and full settlement of ""due bills"" for cash distributions to the buyer took several months of hard arguing. So yeah, the brokers want a little time to get their records in order and settle the trade correctly." The T+3 settlement date only affects cash accounts.  In a cash account, you need to wait until the T+3 settlement date for your funds to be available to make your next trade.  But if you convert your cash account into a margin account, then you do not need to wait until the T+3 settlement date for your next trade - your broker will allow you to make another trade immediately. "Yes.  I heard back from a couple brokerages that gave detailed responses. Specifically: In a Margin account, there are no SEC trade settlement rules, which means there is no risk of any free ride violations. The SEC has a FAQ page on free-riding, which states that it applies specifically to cash accounts. This led me to dig up the text on Regulation T which gives the ""free-riding"" rule in §220.8(c), which is titled ""90 day freeze"". §220.8 is the section on cash accounts. Nothing in the sections on margin accounts mentions such a settlement restriction. From the Wikipedia page on Free Riding, the margin agreement implicitly covers settlement. ""Buying Power"" doesn't seem to be a Regulation T thing, but it's something that the brokerages that I've seen use to state how much purchasing power a client has. Given the response from the brokerage, above, and my reading of Regulation T and the relevant Wikipedia page, proceeds from the sale of any security in a margin account are available immediately for reinvestment. Settlement is covered implicitly by margin; i.e. it doesn't detract from buying power. Additionally, I have personally been making these types of trades over the last year. In a sub-$25K margin account, proceeds are immediately available. The only thing I still have to look out for is running into the day-trading rules." Nice idea. When I started my IRAs, I considered this as well, and the answer from the broker was that this was not permitted. And, aside from transfers from other IRAs or retirement accounts, you can't 'deposit' shares to the IRA, only cash. "See ""Structuring transactions to evade reporting requirement prohibited."" You absolutely run the risk of the accusation of structuring. One can move money via check, direct transfer, etc, all day long, from account to account, and not have a reporting issue. But, cash deposits have a reporting requirement (by the bank) if $10K or over. Very simple, you deposit $5000 today, and $5000 tomorrow. That's structuring, and illegal.  Let me offer a pre-emptive ""I don't know what frequency of $10000/X deposits triggers this rule. But, like the Supreme Court's, ""We have trouble defining porn, but we know it when we see it. And we're happy to have these cases brought to us,"" structuring is similarly not 100% definable, else one would shift a bit right."" You did not ask, but your friend runs the risk of gift tax issues, as he's not filing the forms to acknowledge once he's over $14,000." It depends on the broker. The one I use (Fidelity) will allow me to buy then sell or sell then buy within 3 days even though the cash isn't settled from the first transaction. But they won't let me buy then sell then buy again with unsettled cash. Of course not waiting for cash to settle makes you vulnerable to a good faith violation. You need to contact the trading company and ask them what's going on. If it's simply a matter of needing to add more cash because you are now classified as a day trader, then call them, ask them what you need to do to not be considered a day trader, and do that. It would likely consist of not trading for a week and then trading less than you were going forward to avoid getting classified as a day trader again.  That would be the easy problem to solve, so I hope that's right. "Your broker likely didn't close your position out because it is a covered position. Why interfere with a trade that has no risk to it, from their perspective? There's no risk for the broker since your account holds the shares available for delivery (definition of covered), for if and when the options you wrote (sold) are exercised. And buyers of those options will eventually exercise the options (by expiration) if they remain in-the-money. There's only a chance that an option buyer exercises prematurely, and usually they don't because there's often time value left in the option. That the option buyer has an (ahem) ""option"" to exercise is a very key point.  You wrote: ""I fully expected my position to be automatically liquidated by whoever bought my call"". That's a false assumption about the way options actually work.  I suggest some study of the option exercise FAQs here: Perhaps if your position were uncovered – i.e. you wrote the call without owning the stock (don't try this at home, kids!) – and you also had insufficient margin to cover such a short position, then the broker might have justifiably liquidated your position. Whereas, in a covered call situation, there's really no reason for them to want to interfere – and I would consider that interference, as opposed to helpful.  The situation you've described is neither risky for them, nor out of the ordinary.  It is (and should be) completely up to you to decide how to close out the position. Anyway, your choices generally are:"