Question about Free Riding violation for stock cash account

Hello Mustachians

I did spend time to read online info about it, but I still don’t know if the following scenario is considered as Free Riding violation. I can’t simply try it because I don’t want my trading capacity to be freezed for another 90 days:

On Day T, I sold stocks A, B and C (which were bought weeks ago). If I use the proceeds of the sales to buy back stock A, C and buy stock F on the same day, or on T+1. would these actions considered a violation? Of course I am aware that I have to wait for another 2 days before re-selling the shares of A, C and F to not violate the rule


Why would you sell stock A and C and buy it again on the same day or one day later? This makes no sense and only incurs unnecessary transaction costs.

Most probably you will not be qualified as a professional investor just by violating one of the 5 criteria, often you need to violate 2 criteria, but it is up to the tax office to decide. Also selling stocks and buying again doesn’t violate the criteria, selling stocks that you bought less than 6 months ago violates the criteria.

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I imagine it can happen if you’re forced to sell if a broker closes your account or stops offering it. Then it makes sense to buy it back in another custody account to remain invested.

But I guess this cannot cause free riding because the other broker would only allow you a purchase if you have cash with them already…

These are criteria of the swiss tax offices. OP is talking about certain limitations imposed by regulators of US stock exchanges.

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Then he should clearly state that in his post and probably better ask it in a US forum, I don’t see how this should be relevant for a swiss investor?

IB is a popular broker, so it’s somewhat relevant. And free riding made it pretty clear what this was about (I don’t think it’s ambiguous).

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Why not ask the support of your broker?

Thanks, so do you think my scenario is free riding violation?

because I am with IB, their customer service is slow and unreliable: it has been several months I don’t receive price alerts in my EMail and the ticket is still open

I’d say it’s not a violation. As you’ve described it, you’re not selling any security before the trade is settled.

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thanks, that’s also my opinion(even I am not sure). Hope we are right and I don’t get another 90 days trading freeze :sweat_smile:

did you get a 90 days trading freeze before then? because you say “another”.
for free riding?

isn’t the “punishment” “only” such that IB restricts the account to only purchase using settled funds for 90 days. “freeze” seems a bit exaggerated for such a measure, no?

that’s correct sir

I have another scenario: if I bought stock A and sold it in the same day BUT I I have enough free cash on the side, Is this free riding violation? Thanks

My guess is that you can use settled cash to do whatever you want. Examples at Free Riding Rule | IB Knowledge Base kind-of hint at that by mentioning that you can avoid the violation by depositing funds even after the purchase with unsettled cash.

But I’m not doing any of that, just my interpretation…

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