Comments on: Trading in IRA accounts, and avoiding “free riding”

By: Option Trading Strategy

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By: trade4target

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By: Trading Tips

Trading Tips — Sat, 28 May 2011 12:40:20 +0000

Hey, very nice site. I came across this on Google, and I am stoked that I did. I will definitely be coming back here more often. Wish I could add to the conversation and bring a bit more to the table, but am just taking in as much info as I can at the moment. Thank You. Trading Tips

By: Vance3h

Vance3h — Wed, 02 Feb 2011 05:28:05 +0000

Hi J.

I agree that the T+3 is based on the buy date if there are not settled funds available in the account at the time of the initial purchase. However in an IRA I would think an initial purchase, where you have to deliver cash to your broker is a relatively rare situation given the restrictions on contributions to IRAs. I think it is more likely that people run into problems with quick sell-buy-sell sequences, where settled funds are in the account for the initial purchase, but a quick sale / buy sequence runs a risk of good faith violation / free-riding if the 2nd purchase is sold again before the 3 days it takes for the proceeds from the 1st sale to become settled funds. My post is not clear on this. Thanks for your comment, I’ll rework my post soon to incorporate your scenario and hopefully make it clearer overall. Not easy with this subject..

– Vance

By: J.

J. — Tue, 01 Feb 2011 14:57:41 +0000

I believe T+3 is based on the BUY settling not the SELL. The reason it is not the Sell is because the subsequent buy won’t settle for T+3 as well… so the SELL and then BUY isn’t the problem… it is the intintial BUY being unsettled because you are selling something you don’t yet have and then turning around and using the proceeds of an unsettled BUY to trade with.

By: Travis

Travis — Tue, 30 Nov 2010 06:07:46 +0000

I’m one of those idiots who ignored the whole “trade in your IRA account” until I had to pay taxes on my profits one year…I never made that mistake again.

Thanks for the post. More people need to hear this advice.

By: amy

amy — Fri, 15 Oct 2010 01:47:33 +0000

amy…

excelent info, keep it coming…

By: InvestorInvested

InvestorInvested — Tue, 16 Mar 2010 20:11:19 +0000

Free riding rules are just part of the institutional rubric steup to frustrate the average person from doing what Wall Street does day in and day out. There is absolutely no reason for the rule in this day and age because transactions can be settled in seconds. Ironically, if it is a margined account it is O.K., which is precisely contrary to good policy, which should encourage a balanced cash account for the average investor. This is basically an interest float ripoff.

By: InvestorInvested

InvestorInvested — Tue, 16 Mar 2010 20:11:00 +0000

Free riding rules are just part of the institutional rubric steup to frustrate the aavregae person from doing what Wall Street does day in and day out. There is absolutely no reason for the rule in this day and age because transactions can be settled in seconds. Ironically, if it is a margined account it is O.K., which is precisely contrary to good policy, which should encourage a balanced cash account for the average investor. This is basically an interest float ripoff.