How Many Good Faith Violations Does Webull Allow?

When trading on the stock market, you need to be quick and smart, but again you need to know the rules so your account doesn’t get restricted. So if you are on Webull, you probably want to know how many good faith violations Webull allows? 

How many good faith violations does Webull allow? Webull allows two good faith violations without any restrictions. However, if you commit a third violation, the buying power of your account will be restricted to settled funds.

However, it is not the same if you have two, three, or four violations – each will bring different penalties.

Find out more in the following lines. 

How Many Good Faith Violations Does Webull Allow? 

When you are an active trader on a Webull with a cash account, you will have two GFV without any penalties. And as we mentioned, each GFV will be registered on your account for the next 12 months.

So be careful when you will use this option and, of course, make sure this GFV pays off. If you do more than two GFVs, you will see different penalties depending on how many times you did it. Here is what the rules on Webull are:

  • Third GFV – After the third GFV occurs, the buying power of the account will be restricted to settled funds. This means selling funds will no longer increase your buying power until T+2. 
  • Fourth GFV – After four GFVs, your account will be restricted for 90 days. 
  • Fifth GFV – After five GFVs, the account will be closed for 90 days. 

What Is a Good Faith Violation? 

It could be said that Good Faith Violation is equivalent to Pattern Day Trading, even though there are many differences.

A GFV is when someone uses unsettled cash to purchase new stock and then sells that new stock before the cash is settled

Let’s explain this in the example.

Imagine you sold a stock for $100, but in order to have the cash, you need to wait two business days. Still, your account will appear as unsettled cash, which you can use to purchase new stocks.

The exchange network gives you access to your future funds before they are settled in good faith that you will not use them in the wrong way.

But if you purchase new stocks and sell them before cash is settled, that will be called Good Faith Violation or GFV. 

What Does Unsettled Cash Mean?  

The cash account usually has a T+2 settlement period, meaning that there’ll be some time until the money you earn from selling some security passes.

On Webull, this is usually up to two business days. While you will have funds in your account, this cash will be unsettled.

If you wait two business days, you can then freely purchase new stocks. 

Difference Between Margin and Cash Account 

Before you start trading on Webull, you need to learn the difference between a margin and a cash account.

For starters, cash accounts mean the broker needs to pay the full amount of the security they purchase.

On the other hand, a margin account will allow investors to leverage the securities they already own to purchase new ones.

Here are other major differences between these two accounts on Webull.

Cash accountMargin account
Net account valueUnlimited$0-2,000 $2,000-25,000≥$25,000
Day TradeN/A3-day trades in 5 business days3-day trades in 5 business daysunlimited
Margin tradeNoNoDay trade: up to 4 timesOvernight: up to 2 times
Short sellingNoNoYesYes 

Does Good Faith Violation Go Away? How to Avoid Getting Good Faith Violations?

When you get a GFV, there is nothing you can do to make it disappear. It will stay on your account for the next 12 months.

Even if you deposit cash or liquidate positions, you will still not be able to fix this.

The best way to avoid GFV is to purchase stocks that have fully settled funds.

Let’s explain this in the example.

Peter has settled funds on his account for $100, and he decides to purchase new stocks for $100 on Monday. On Monday afternoon, he decides to sell those stocks for $110, and the funds are due to settle on Wednesday.

Still, this doesn’t count as GFV since, in this example, Peter used his own settled money to make a trade. 

The Best Course of Action Is to Trade With Settled Funds 

If you wish to avoid any GFV, the best would be to only trade with the money you have deposited in your account.

The other option is to open a margin account. It will give you more trading options and buying power.

Also, when it comes to withdrawing with a margin account, you can withdraw both your settled and unsettled funds. A margin account will also allow you to make at most three day trades within five business days.

But if you make more than three trades in 5 business days, you will be marked as Pattern Day Trader

As you can see, you can open a margin account on Webull with a $0-2,000 deposit, but if you keep your account on $25,000, you will have unlimited day trading options.

So before you decide what kind of trading is best for you, make sure you understand all the rules that apply to that account and what kind of benefits or limitations you will have.