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.
Vanguard Brokerage free-riding question
- Thread starter jim584672
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Texas Proud
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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...
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...
pb4uski
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Did you call VBS and ask them? Their answer would be more authoritative than ours.
meierlde
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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.
LOL!
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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.
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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pb4uski
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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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Fedup
Thinks s/he gets paid by the post
I have Scottrade for trading. Buy and sell in 15 minutes.
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gauss
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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
Texas Proud
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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
MRG
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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.
Fedup
Thinks s/he gets paid by the post
No, regular account. But I don't know if it makes a difference.
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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."
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."
Travelwanted
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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.
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.
I got the warning when I tried to do the sale. The purchase was no problem.
Texas Proud
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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...
ERD50
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I'm curious, what did you mean by "the funds to pay for it are in the settlement account."? That might be key? If a different account, they might not 'show up' in your trading account until after the close? This might have something to do with what I've been reading about Vanguard consolidating brokerage accounts with other accounts at Vanguard?
In an IRA, and a non-margin account, you aren't supposed to be allowed to sell something you bought with funds that were not settled in the account, until they are settled. I got that warning just the other day from E*Trade in my IRA (been doing a little short term playing with options lately).
I don't know if this applies in your case, but I don't think it is the size of the trade that matters, or % of portfolio, it is simply a matter of whether the purchase was made with unsettled funds. I'd guess that even a single $ unsettled out of a $100,000 purchase would trigger their computer to give that warning.
If other brokerages are not doing this, it seems to me they are in violation of SEC rules (not applicable if you have a margin account)?
-ERD50
It is the sweep account. I have been in "cash" not waiting on any trades to settle. They use the term "settlement account".
ERD50
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OK, but I still think there is a difference between the funds showing up on your balance, and being 'settled' (available to use to purchase w/o restriction).
Example (assume non-margin account):
I have $300 cash balance in the account. I sell $1,000 worth of stock ABC. IME, as soon as I sell, my account shows a cash balance of $1,300. But that $1,000 is not 'settled' for three days.
So if I buy over $300 worth of another stock, I will be told that I cannot sell that stock until the funds from the sale of stock ABC settle.
That is my understanding. That is why I was a little surprised when the warning popped up for me, I knew I had the cash there, but alas, it was not settled cash.
Does that fit your situation? Although - I got the warning when I made the purchase (and maybe not until just after, but I'm not sure now). It would be best if it came up before it let you complete the purchase, I think mine did, but I think I hit submit rather than 'back' to check! But it worked out OK for me. Well, actually, it worked out badly, but not due to the restriction
I'll watch more closely if this comes up again. I know my balance sheet will also show 'available for purchase', and that excludes cash that is reserved against a put sale for example. But I don't think they exclude unsettled funds, as they are available for purchase, but then there are restrictions once you make the purchase. Maybe 'available', and 'available w/o settlement restriction' would be more helpful?
-ERD50
