Personal Finance & Money Asked on March 21, 2021
I am trying to understand "freeriding" in a cash account. I have already read these SEC publications: Freeriding and Updated Investor Bulletin: Trading in Cash Accounts. The purpose of this question is to confirm that I have a correct understanding of "freeriding". Scenarios:
I have $1,000 in my cash account. On Monday morning, I buy 5 shares of ABC at $200 per share. A few hours later, I sell all 5 shares at $210 (profit: $50). On Tuesday, I buy 5 shares of ABC again at $200 per share.
I have $1,000 in my cash account. On Monday morning, I buy 5 shares of ABC at $200 per share. A few hours later, I sell all 5 shares at $210 (profit: $50). On Tuesday, I use the profit from Monday to buy 1 share of another stock at $50 per share.
I have $1,000 in my cash account. On Monday, I decide to day-trade a $5 stock. For simplicity, let us assume that the price of the stock remained at a constant $5 throughout the day. I buy 100 shares at 10am, sell 100 shares at 11am, buy 100 shares again at 12pm, sell 100 shares at 1pm.
Strangely, the simple scenarios above are not illustrated in the SEC articles. Is my understanding of "freeriding" correct? Is scenario (2) considered freeriding too?
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