I sold my shares of $IMUC first thing Thursday morning. Right after the sell, I noticed E*Trade Pro showed my account balance as $0.00. I didn’t pay it any mind because as I’ve mentioned before, moving money around inside my account takes forever. I just assumed that my account would come back to life on Friday.
I logged into my account Friday morning and seen the same thing, $0.00. I couldn’t trade on Friday because I had a couple of IT service calls to run. Before leaving the house, I sent the following message to E*Trade customer service.
“I’m new to trading and have gone in and out of a few trades this week. I noticed this morning that I do not have any buying power. Has my account been restricted for some reason? I might have bought and sold without waiting for funds to settle.”
I heard back from E*Trade this morning. Just as I suspected, my account has been restricted for 90 days. What the hell! Thier full response is below.
Sent: 09/20/2014 11:49 AM
Reference Number: 34010xx
Customer Service Message:
Thank you for your message regarding trading in account XXXX-XXX. The account contains a 90-Day Cash Restriction for a sale of API shares. The restriction will be removed on 12/16/2014.
After the purchase and sale of securities, there is a federally regulated period known as settlement. For stocks, this period is three business days, for mutual funds this can be one to three business days depending on the mutual fund. During this time, the market makers can review executed orders and make any necessary corrections.
Per industry regulations, if an investor purchases a security using any part of proceeds generated by an unsettled sale, then the purchased security must be held until the prior sale settles or settled funds are available to cover the purchase. The system will not prevent you from selling the new shares, but if they are sold prior to settlement of the prior purchase, then a 90 day free-riding restriction will be assessed against the account. A cash call will be generated for the amount of unsettled purchases, due by the trade date plus five business days from the original purchase, or the restriction will remain in effect. During this 90 day period, settlement will need to be completed before having access to the sale proceeds.
The example below illustrates the type of activity that will result in an account being placed on a 90-day restriction:
At the beginning of the day, a customer holds 1,000 shares (settled) of ABC in a cash account. The customer then makes the following transactions:
– The customer sells the shares of ABC for $25,000.
– Using the funds from the sale of ABC, the customer then purchases shares of XYZ for $25,000 on the same day.
– Before the sale of ABC has settled, the client sells the position in XYZ and receives $25,000.
In this example, the customer essentially sold the XYZ shares before paying for them, as the original XYZ purchase transaction used funds from the sale of ABC that were not yet settled. This would result in the 90-day trading restriction referenced above being placed on the account. To avoid the restriction, the customer can either wait for the original sale to settle before selling the new shares, or deposit sufficient funds to cover the purchase of the new shares before selling them. To avoid any holds on deposited funds, we recommend using a wire transfer or a transfer from another linked E*TRADE account so that funds are available immediately upon receipt.
As per industry regulations, one free-ride violation requires E*TRADE Securities to restrict the account for 90 days. This is to help prevent a second free-ride violation. A second violation could lead to the account being closed.
9:00AM ET – 5:30PM ET
Switching over to SureTrader is something I’ve wanted to do for about 2 weeks. With SureTrader, it only costs $10 for a round-trip trade as apposed to E*Trade’s $20 commission fee.
There are several additional benefits to using SureTrader for those just starting out. Because SureTrader is offshore, your account will not be subject to the pattern day trader rule. For new accounts with less than $25,000, this mean you can trade as much as you’d like. Hell ya! SureTrader specializes in penny stock shorting. They have over 10,000 symbols to trade and one of the largest short lists of any broker.
My checking account is busted right now so I’m not sure what my next move will be. I heard that you can open and then fund a SureTrader account with a credit card. I would hate going into debt to start trading again, but I’m not ruling it out.
In the end I don’t blame E*Trade for my account being restricted, I understand they’re just playing by the rules. The only question I have is why in the world do they let you make another trade knowing that the money from the last trade hasn’t settled? It’s ridiculous if you ask me. By allowing my account be become restricted, they cant make any money from me for the next 3 months.
Again, I’m new to all of this and still learning the ins and outs of this wild industry.