Market Structure & Trade Execution › Clearing, Settlement & Brokerage Mechanics
Cash Account Violation Simulator
See violations before they happen to you.
Good-faith violations, freeriding, and the 90-day restriction are hard to understand from a rule description alone. This simulator lets you build trade sequences day by day and watch T+1 settlement mechanics produce or avoid violations in real time — using generic securities, no real account data required.
Direct Answer
The cash account violation simulator models how good-faith violations, freeriding, and the 90-day cash account restriction arise from T+1 settlement timing. By building a sequence of trades day by day, the simulator shows exactly which sequences trigger a violation and which stay clear, using generic securities and no real account data.
Educational tool only. This simulator uses hypothetical generic securities and user-entered assumptions. It does not process real account data, accept real credentials, or constitute investment or legal advice. Actual violation thresholds, restriction terms, and settlement rules vary by broker and are governed by Regulation T, FINRA Rule 4210, and your broker’s account agreement.
Violation Simulator
Choose a pre-built scenario to see how a violation happens, or build a custom trade sequence. Securities are named generically (Security Alpha, Security Beta) — no real tickers or account information is used or needed.
Pre-built scenarios
Trades on the same day are processed in the order shown above. Drag-to-reorder is not supported. Delete and re-add to change same-day order.
Simulation Results
| Day | Action | Security | Amount | Settled Cash | Unsettled | Status | Detail |
|---|
How Cash Account Violations Work
A cash account operates under Regulation T (12 CFR § 220.8), which requires that every securities purchase be paid in full with settled funds. Under T+1 settlement (effective May 28, 2024 for U.S. equities), the proceeds from a stock sale settle one business day after the trade date.
The three violation types
| Violation | What happens | Typical trigger threshold | Typical restriction |
|---|---|---|---|
| Good faith violation (GFV) | Buy a security using unsettled proceeds from a recent sale, then sell that new security before the original proceeds settle. | 3 in a rolling 12-month window (broker-dependent) | 90-calendar-day settled-cash-only restriction |
| Freeriding | Buy a security with no settled funds in the account at all, then sell it — paying for the buy with the sale proceeds. | Single occurrence | Immediate 90-day settled-cash-only restriction |
| Cash liquidation violation | Buy a security, sell a different security to fund that purchase, then sell the first security before the funding sale settles. | 3 in a rolling 12-month window (broker-dependent) | 90-calendar-day settled-cash-only restriction |
The settlement gap that creates violations
When you sell a stock, the cash does not land in your settled balance until the next trading day (T+1). In the gap between the trade and settlement, those funds are unsettled. If you buy another security using that unsettled cash, the new position’s “payment” depends on the first sale actually clearing. Selling the new position before that first settlement completes means you have sold a security you effectively never fully paid for with cleared funds.
What the 90-day restriction means in practice
- You can still sell existing positions at any time during the restriction.
- Every new purchase must be covered entirely by cash that has already settled in the account before you place the order.
- You cannot rely on same-day or recent sale proceeds to fund a buy, even if the account balance appears sufficient.
- The restriction applies to that specific account only. Other accounts at the same or different brokers are unaffected.
Frequently Asked Questions
What is a good faith violation?
A good faith violation occurs in a cash account when you sell a security before the funds used to purchase it have fully settled. The money was real. It just had not cleared yet. The violation arises because Regulation T requires each purchase to be funded with settled cash. Buying with unsettled proceeds from a recent sale and then selling the new position before those proceeds settle is the classic pattern.
What is freeriding and how is it different from a GFV?
Freeriding occurs when you buy a security with no settled funds in the account at all and then sell it before any outside cash arrives, effectively using the sale proceeds to pay for the purchase after the fact. A good faith violation involves real but unsettled funds; freeriding involves no settled funds whatsoever. That distinction is why regulators treat freeriding more seriously: a single occurrence typically triggers the 90-day restriction immediately, while GFVs usually allow a small number before any restriction applies.
How many good faith violations trigger the 90-day restriction?
Most brokers apply the 90-day settled-cash-only restriction after three good faith violations within a rolling 12-month period (broker policy, not a universal SEC rule). However, brokers can set stricter internal thresholds, and some apply restrictions after fewer occurrences. Check your own broker’s account agreement rather than assuming the three-violation figure applies universally.
What does the 90-day restriction actually prevent me from doing?
The restriction does not freeze the account. You can still sell positions you already hold without limitation. What changes is that every new purchase must be fully covered by cash that has already settled in the account before you place the order. You cannot use same-day sale proceeds or any unsettled proceeds to fund a buy during this 90-calendar-day window.
Does T+1 settlement reduce the risk of cash account violations?
Partially. T+1 shortened the settlement window from two business days to one, which reduces how long funds stay in an unsettled state. However, it does not eliminate the risk. Any trader who buys and then sells within the same settlement window, even a one-day window, can still trigger a violation. The rule concerns the order of settled cash relative to trades, not the specific number of days.
What is a cash liquidation violation?
A cash liquidation violation occurs when you buy a security and then sell a different security to fund the cost of the first purchase, but then sell the originally purchased security before the funding sale’s proceeds settle. It is a variant of the good faith violation: the purchase was funded through a concurrent liquidation whose proceeds had not yet cleared when you exited the position you intended to hold.
Can I still trade during the 90-day restriction?
Yes, but only using fully settled cash. Every buy order must be funded by cash that has already cleared and settled in the account before you submit the order. Existing positions can still be sold at any time. The restriction does not affect your ability to hold securities you already own or to exit positions you entered before the restriction began.
Will a cash account violation appear on my credit report or brokerage license record?
No. Good faith violations and freeriding are account-level trading restrictions enforced by your broker under Regulation T and FINRA rules. They are not credit events and do not appear on a credit report or a securities license disciplinary record. The only consequence is a temporary 90-day settled-cash-only restriction on that specific brokerage account.
Does the simulator account for deposits arriving during the sequence?
It works from the trade sequence and the settled funds available at each step, so any deposit has to be reflected in the starting position rather than added mid-sequence. That matters because deposited funds are not necessarily available immediately: transfers by electronic funds transfer are commonly subject to a hold before they count as settled for this purpose. A deposit assumed to be available on arrival can make a sequence look compliant when the broker would treat it otherwise.