All Collections
Using Hatch
What is a good faith violation?
What is a good faith violation?

Got a notification about a good faith violation? Here's what they are and how to avoid them

Support avatar
Written by Support
Updated over a week ago

When you sell shares, the money you make shows in your Hatch account once the order has been completed. Behind the scenes, it takes a full US business day for the ‘actual’ money to change hands. During this time, the money you’ve received from the sale is considered ‘unsettled’.

You can buy shares using unsettled money straight away, but, if you sell those shares within one US business day (before the money you used to buy them settles), it’s considered a ‘good faith violation’. This is because you’re selling shares (and maybe making a profit) from money you don’t actually have yet.

If you get a good faith violation, you’ll receive a warning in Hatch.

How bad is a good faith violation?

We won’t tell your parents, but you should probably avoid them.

Accounts with three good faith violations within a 12-month period will be restricted to buying shares with money that has settled. This restriction lasts for 90 days and then the restriction will be lifted - we can’t remove the restriction early.

You can still buy and sell shares, but restricted accounts can no longer buy shares using unsettled money. You'll have to wait one US business day after each sale before you can use the money you made to buy more shares.

Note: If you already own shares in a particular company or ETF and then buy shares with unsettled money, then all your shares in that company or ETF will be classed as unsettled for 1 US business day.

How do I avoid a good faith violation?

An easy way to avoid any issues is to always wait at least one US business day after you buy shares before you sell them. A ‘business day’ is a day that the NYSE and Nasdaq are open.

Here are some examples of when a good faith violation is triggered

Example 1:

  • On Monday morning, an investor sells Y shares for $5,000.

  • On Monday afternoon, the investor buys X shares for $5,000.

  • If the X shares are sold before Tuesday (settlement date of the Y sale), it would be a good faith violation. This is because the X shares were bought using money made from the sale of Y shares, and sold before the Y share sale has settled.

Example 2:

Available balance to invest = $5,000 (unsettled from a sale of shares on Tuesday NZT, which will settle on Wednesday NZT)

  • The investor has an existing 100 shares in Y company

  • On Tuesday morning, the investor purchases 50 more shares of Y shares with the unsettled $5,000

  • If the investor then sells 10 Y shares on Tuesday, they will have a good faith violation because the whole Y position of 150 shares will be classed as unsettled until Wednesday

Did this answer your question?