By Good Faith Violations in Cash Accounts
A good faith violation happens when you buy with unsettled proceeds and sell before they settle. Here is the T+1 rule, worked examples, and the 90 day penalty.
A good faith violation happens in a cash account when you buy a security with the proceeds of a sale that has not settled yet, then sell that security before those proceeds settle. Under T+1 settlement the cash from a sale stays unsettled for one business day, and a cash account has no credit behind it to bridge the gap. The penalty is not a fine: it is a restriction that limits you to settled cash for 90 days.
Three named violations come out of that single mechanic: the good faith violation, free riding, and the cash liquidation violation. Only one of the three is written into federal regulation. The other two are broker enforcement of the same underlying requirement.
What counts as settled cash under T+1?
Sell a stock and two things happen on different days. The trade executes on the trade date, and your balance updates on the spot. Shares and money actually change hands on the settlement date, one business day later, which is what T+1 names. In between, that money is unsettled: visible, spendable once, and not yet yours in the way the rule cares about. The full cycle is in how T+1 stock settlement works.
A cash account extends no credit at all, and that is the whole design. Regulation T lets a broker accept a purchase in a cash account when sufficient funds are already sitting there, or in good faith on your agreement to pay in full. That phrase is where the name of the first violation comes from.
The calendar below pairs each upcoming session with the day a sale made in that session settles.
The exact SQL behind every number
SELECT
toString(s.d) AS trade_date,
concat(formatDateTime(s.d, '%a'), ', ', formatDateTime(s.d, '%b'), ' ', toString(toDayOfMonth(s.d))) AS traded_on,
concat(formatDateTime(s.next_open, '%a'), ', ', formatDateTime(s.next_open, '%b'), ' ', toString(toDayOfMonth(s.next_open))) AS settles_on,
dateDiff('day', s.d, s.next_open) AS calendar_days_to_settle
FROM
(
SELECT
d,
leadInFrame(d) OVER (ORDER BY d ROWS BETWEEN 1 FOLLOWING AND 1 FOLLOWING) AS next_open
FROM
(
SELECT d
FROM
(
SELECT today() + arrayJoin(range(0, 45)) AS d
)
WHERE toDayOfWeek(d) BETWEEN 1 AND 5
AND d NOT IN
(
SELECT date
FROM global_markets.stocks_market_holidays
WHERE status = 'closed'
)
)
) AS s
WHERE s.next_open > s.d
ORDER BY s.d
LIMIT 15A sale on Tue, Aug 11 settles Wed, Aug 12. A sale on Mon, Aug 31 settles Tue, Sep 1. Across the 15 sessions on the panel, the line sits at a single calendar day through the middle of each week and steps up over every weekend. The unit that counts is business days, and the calendar quietly converts them into something longer.
How often is your cash more than a day away?
Most of the time the wait is overnight. The rest of the time it is longer, and the panel below counts how much longer, using the past year of real sessions.
The exact SQL behind every number
SELECT
concat(toString(gap_days), if(gap_days = 1, ' calendar day', ' calendar days')) AS gap_label,
count() AS sale_count,
round(100.0 * count() / sum(count()) OVER (), 1) AS share_pct
FROM
(
SELECT
dateDiff('day', date, leadInFrame(date) OVER (ORDER BY date ROWS BETWEEN 1 FOLLOWING AND 1 FOLLOWING)) AS gap_days
FROM
(
SELECT date
FROM global_markets.stocks_daily_aggs
WHERE ticker = 'SPY'
AND date >= today() - 366
AND date <= today() - 3
GROUP BY date
)
)
WHERE gap_days > 0
GROUP BY gap_days
ORDER BY gap_daysOver the trailing year, 78.3% of sessions settled the very next calendar day, 195 of them. Every other session crossed a weekend or a holiday first. The longest wait on the panel is 4 calendar days, which came up 7 times. Those long gaps are where the examples below sit.
What is a good faith violation?
A good faith violation has two legs. First you buy a security with proceeds that have not settled, which your broker will let you do. Then you sell that security before the proceeds you bought it with have settled. The second leg is the violation, and the name comes straight from the good faith language in Regulation T Section 220.8.
Every example that follows uses one pinned week: KO and AAPL across the sessions on either side of the Independence Day closure in July 2026. July 4 landed on a Saturday that year and the exchanges took Friday, July 3 instead, so the chart has no point on it.
The exact SQL behind every number
SELECT
toString(w.date) AS trade_date,
concat(formatDateTime(w.date, '%a'), ', ', formatDateTime(w.date, '%b'), ' ', toString(toDayOfMonth(w.date))) AS traded_on,
round(toFloat64(w.ko_close), 2) AS ko_close,
round(toFloat64(w.aapl_close), 2) AS aapl_close,
concat(formatDateTime(w.next_open, '%a'), ', ', formatDateTime(w.next_open, '%b'), ' ', toString(toDayOfMonth(w.next_open))) AS settles_on
FROM
(
SELECT
date,
ko_close,
aapl_close,
leadInFrame(date) OVER (ORDER BY date ROWS BETWEEN 1 FOLLOWING AND 1 FOLLOWING) AS next_open
FROM
(
SELECT
date,
maxIf(close, ticker = 'KO') AS ko_close,
maxIf(close, ticker = 'AAPL') AS aapl_close
FROM global_markets.stocks_daily_aggs
WHERE ticker IN ('KO', 'AAPL')
AND date BETWEEN '2026-06-29' AND '2026-07-14'
GROUP BY date
HAVING countIf(ticker = 'KO') > 0
AND countIf(ticker = 'AAPL') > 0
)
) AS w
WHERE w.date <= '2026-07-10'
ORDER BY w.dateStart on Thu, Jul 2. You sell 100 shares of KO at that day's close of $84.14. The cash appears in the balance at once and settles Mon, Jul 6, on the far side of the long weekend. That same afternoon you buy AAPL at $308.63 with the unsettled proceeds. Nothing is wrong yet. This is the good faith purchase the rule permits.
Sell that AAPL before the KO cash settles and the violation lands. Under T+1 the window is one session wide. The next session the market holds, Mon, Jul 6, is the settlement date itself, so the only way to break this particular rule is a same-session round trip funded by unsettled money. Hold into Tue, Jul 7 and sell at $310.66, and the KO proceeds settled the day before. Nothing is flagged.
What happens after a violation is at the broker's discretion. Firms count them over a rolling twelve months and restrict the account to settled cash for 90 days once the count crosses their threshold. That threshold is policy, and it differs between firms, so the number to watch is your broker's rather than a regulator's.
What is free riding, and what does Regulation T do about it?
Free riding is the version with no money in it at all. You buy without the funds to pay, then cover the purchase with the proceeds of selling that same security.
Regulation T sets the deadline. The payment period defined in Section 220.2 is the standard settlement cycle plus two business days, which under T+1 makes full payment due three business days after the trade date. Buy AAPL on Mon, Jul 6 at $312.66 with nothing settled in the account, and payment is due by the close of Thu, Jul 9. Sell it on Tue, Jul 7 at $310.66 and let that sale pay for the purchase, and the position rode for free.
Section 220.8 covers what comes next: the account is frozen for 90 calendar days. A freeze does not close the account. It withdraws the good faith allowance, and every purchase during those 90 days has to be covered by cash that has already settled at the moment the order goes in. Two footnotes matter. A broker can apply to its designated examining authority for an extension of the payment period, and Regulation T lets a broker disregard a sum due of $1,000 or less, which keeps trivial shortfalls out of the freeze.
What is a cash liquidation violation?
The third violation is a mismatch between two settlement dates. You buy a security without the settled cash to pay for it, then sell something else to raise the money, and that second sale settles after the purchase was due.
Buy AAPL on Mon, Jul 6 at $312.66 with the account holding stock and no settled cash. That purchase settles Tue, Jul 7. You then sell KO on Tue, Jul 7 at $84.05 to cover it, and those proceeds settle Wed, Jul 8, a day after the money was needed. That is a cash liquidation violation, and it looks nothing like being broke. The account held plenty. It held it in the wrong form on the wrong day.
Sell the KO on Mon, Jul 6 instead, the same session as the purchase, and both trades settle Tue, Jul 7. The cash lands on the day it is owed.
Why a margin account never sees any of this
All three violations are artifacts of an account with no credit in it. A margin account can lend against marginable positions, and that loan covers the day between a sale and its settlement, so there is never a moment when the account owes money it cannot produce. The trade-off is interest on the loan and a rulebook of its own. Reg T margin and portfolio margin covers how borrowing power is set, and non-marginable securities covers the names no margin account will lend against, which have to be paid for in full even there.
Do options settle T+1 in a cash account too?
Option premium runs on the same clock. Sell a call and the premium is unsettled cash until the next business day, exactly as a stock sale is. US equities moved from T+2 to T+1 on May 28, 2024; listed options were already settling the next business day and did not move. Buy an option with unsettled proceeds and close it in the same session, and that is a good faith violation on identical terms. Exercise and assignment add a second leg: the shares that change hands settle T+1 from the exercise date, so the cash owed on an exercised call is due on the stock's clock.
Is this the same as the pattern day trader rule?
No, and this is the most common mix-up in the topic. The pattern day trader rule is a margin account rule: four or more day trades inside five business days flags the account, and a flagged account has to hold $25,000 in equity. A cash account cannot be flagged, however many round trips it makes. What limits a cash account is settlement. Trade with fully settled cash and you can round trip as often as that balance allows, with each round trip parking the money for a business day before it can work again. The mechanics are in the pattern day trader rule.
How these panels are built
The forward calendar takes the next 45 calendar days, keeps the weekdays, and drops the dates the exchange schedule marks as full closures. Settlement is then the next remaining session, which is what T+1 means in practice. The trailing-year gap counts use SPY as a session ruler: a date with a daily bar is a date the market held a regular session. The July 2026 week is pinned to fixed dates, so its closes and settlement dates do not move when the post is refreshed.
FAQ
What is a good faith violation in a cash account?
It is selling a security before the funds you bought it with have settled, where those funds came from an earlier sale that is still unsettled. The purchase itself is permitted. The early sale is what creates the violation. Under T+1 that usually means a same-session round trip funded by a sale made that same day.
How many good faith violations before my account is restricted?
The count is broker policy rather than regulation. Firms commonly track violations over a rolling twelve months and apply a 90 day settled-cash-only restriction once an account passes their threshold. Your broker's account agreement carries the specific number.
What happens if you free ride in a cash account?
Regulation T Section 220.8 has the broker freeze the account for 90 calendar days. Trading continues during a freeze, with every purchase paid from cash that has already settled. Regulation T also lets a broker disregard a sum due of $1,000 or less.
Can you day trade in a cash account without $25,000?
Yes. The $25,000 minimum belongs to the pattern day trader rule, which applies to margin accounts. A cash account is bounded by settled funds instead: the same dollars can be traded again once they come back to you, one business day after each sale.
Do options settle T+1?
Yes. Listed option premium settles the next business day, the same as stock, so proceeds from selling an option are unsettled cash until then. Stock delivered through exercise or assignment settles T+1 from the exercise date.
Every panel here ships with the SQL that produced it. Open one, swap in another ticker or another week, and check the settlement dates for a stretch of your own on the Strasmore terminal.