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Vanguard Brokerage free-riding question
Old 01-20-2016, 03:20 PM   #1
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Vanguard Brokerage free-riding question

I have a Roth account at Vanguard and purchased a stock today, the funds to pay for it are in the settlement account. The stock goes up and I want to sell on the same day, I get a free-riding warning. How long will I have to wait to sell the stock? I have a margin account for after tax and never ran into this problem before. Thanks.
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Old 01-20-2016, 03:26 PM   #2
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The problem you have is that you do not have settled funds to do any trading right now...

You can buy and sell in the same day, but you then have to wait for all trades to settle before you have any 'real' money... you cannot violate this in a IRA account..


In a margin account this does not happen since you can 'borrow' funds to make another trade before settlement...
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Old 01-20-2016, 03:28 PM   #3
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But the stock settles in three days, both the buy and sell, and I have the funds in the settlement account?? Makes no sense to me.
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Old 01-20-2016, 03:37 PM   #4
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Did you call VBS and ask them? Their answer would be more authoritative than ours.
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Old 01-20-2016, 03:38 PM   #5
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I have a Roth account at Vanguard and purchased a stock today, the funds to pay for it are in the settlement account. The stock goes up and I want to sell on the same day, I get a free-riding warning. How long will I have to wait to sell the stock? I have a margin account for after tax and never ran into this problem before. Thanks.
What happens if the first trade becomes a failure to deliver i.e. the seller does not come up with the stock. By putting the delay in Vanguard protects you from having a situation where you have to deliver stock you don't have. Also protects vanguard in the situation.
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Old 01-20-2016, 03:38 PM   #6
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Calling them now, on hold.
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Old 01-20-2016, 03:51 PM   #7
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Called Vanguard, they say I have to wait 3 days before I can sell the stock. This makes no sense, I will call my other broker to see what they have to say. I think they are not interpreting the rule correctly.
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Old 01-20-2016, 04:01 PM   #8
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It won't help you today, but this is a reason I have multiple accounts at different brokers. I use the same investments in more than one account.

So today I bought some VBR in the morning and sold it in the afternoon. The buy was in my 401(k) account, but the sell was in my taxable account at a gain. I won't pay capital gains taxes on the realized gain (shares were acquired in April 2009, so hefty gain) because I have carryover losses to offset them. Also, no free-riding to speak of going on with me.

Also Vanguard is more conservative than other brokers, so I do not use them except for mutual funds if I can help it.
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Old 01-20-2016, 04:09 PM   #9
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Called Vanguard, they say I have to wait 3 days before I can sell the stock. This makes no sense, I will call my other broker to see what they have to say. I think they are not interpreting the rule correctly.
Yes, don't accept their explanation until you get an answer that makes sense. I ran into a situation with their CSRs back in December where they were misinterpreting IRS rules... it took me almost 24 hours to get it sorted out but I did eventually get it resolved to my satisfaction. The initial interpretation of the CSR and the "specialist" that the CSR consulted was totally wrong and I was right.
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Old 01-20-2016, 05:55 PM   #10
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I have Scottrade for trading. Buy and sell in 15 minutes.


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Old 01-20-2016, 07:25 PM   #11
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Called Vanguard, they say I have to wait 3 days before I can sell the stock. This makes no sense, I will call my other broker to see what they have to say. I think they are not interpreting the rule correctly.
Have you read the account agreement? Is there anything in there about this? It is possible that Vanguard has it's own anti-Day-Trading rules to discourage this type of behavior.

Granted this may be less of an issue with a brokerage account than with open-ended mutual funds, but I wouldn't be surprised to find that it is some type of local VBS policy.

-gauss
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Old 01-20-2016, 10:24 PM   #12
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I have Scottrade for trading. Buy and sell in 15 minutes.


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Is it an IRA account? That does make a difference...

Also, what I think the OP said is that he did both trades and got the warning... which means he cannot buy another security until both are settled....

https://en.wikipedia.org/wiki/Free_riding
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Old 01-20-2016, 11:05 PM   #13
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Called Vanguard, they say I have to wait 3 days before I can sell the stock. This makes no sense, I will call my other broker to see what they have to say. I think they are not interpreting the rule correctly.
That's my understanding. I belive that Vanguard is the most conservative of brokerages with their interpretation of the rules. I recall years ago Options Express would let you get away with one outstanding sale but would balk at the next one.
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Old 01-20-2016, 11:37 PM   #14
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Is it an IRA account? That does make a difference...

Also, what I think the OP said is that he did both trades and got the warning... which means he cannot buy another security until both are settled....

https://en.wikipedia.org/wiki/Free_riding

No, regular account. But I don't know if it makes a difference.


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Old 01-21-2016, 05:34 AM   #15
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I found the SEC site has a document on this:
http://www.sec.gov/investor/alerts/cashaccounts.pdf

The transaction should be permitted according to this document.

"What type of trading is permitted in a cash account?

Some examples of trading that would be permitted in a cash account include:

A. An investor has $10,000 in cash and no securities in a cash account. The investor buys $10,000 worth of ABC stock on Monday and sells it the same day.

These transactions are permissible since the investor purchased the ABC stock on Monday with the $10,000 in cash that the investor had in the cash account. Since the investor purchased the ABC stock with cash, the investor may sell this stock at anytime.
"
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Old 01-21-2016, 06:00 AM   #16
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Jim, i generally really like Vanguard, but not for doing relatively quick trades.

A couple years ago I was doing very well with small amounts of money buying and selling stocks, often in the same day. Don't worry, this was a very small portion of my portfolio.
Well, sure enough, Vanguard warned me and then reversed a $1000 winning trade on me.
I was pissed.

Vanguard is best suited for utilizing the low cost mutual funds. I think they are terrible for frequent trading - and they admit to that.
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Old 01-21-2016, 06:06 AM   #17
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I usually don't do day trading, but yesterday we had a great reversal and I got a on board. I have never seen a broker who hates people's commissions and tries to impose their view of the "right" way to invest.
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Old 01-21-2016, 08:08 AM   #18
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Also, what I think the OP said is that he did both trades and got the warning... which means he cannot buy another security until both are settled....
https://en.wikipedia.org/wiki/Free_riding
I got the warning when I tried to do the sale. The purchase was no problem.
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Old 01-21-2016, 08:28 AM   #19
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I got the warning when I tried to do the sale. The purchase was no problem.

OK, thinking a bit as I do not do many trades at Vanguard....

But, IIRC any purchases of stocks do not show up on your account until the next day... IOW, when you go to sell stocks it does not show up as a valid stock to sell.... is this correct? Do you remember if you put in the trade yourself or clicked on a stock you wanted to sell?


There also might be some problem with how they handle the MM account.... mine is separate, IOW not under the broker heading... so when I buy it shows a negative 'cash' balance in my broker account....


Let us know what they finally tell you... it would be interesting to get their explanation...
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Old 01-21-2016, 09:51 AM   #20
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Just sold the shares, no warnings. I think the warning from yesterday was bogus and the CSR was incompetent.
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