When you sell shares, the money you receive shows up in your Hatch account as soon as the order is completed. Behind the scenes, it takes 3 working days 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 that unsettled money straight away without any problems. However, if you sell those shares within 3 working days (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 ‘have’ yet.
If you commit a Good Faith Violation, you’ll receive an email warning. After three Good Faith Violations, your account will be restricted for 12 months. This means any orders you make to buy shares with unsettled money will automatically be rejected and if you repeatedly make orders with unsettled money, you will only be able to place sell orders.
If you have $1,000 in your Hatch account, and sell $500 worth of shares, you’ll immediately see a balance of $1,500. $500 of that balance is ‘unsettled’ money. In this situation:
- You can invest $1,000 of balance in shares and sell them again within 3 working days because you are investing only money that has settled
- You can invest $1,001 or more of your balance in shares, but because part of your order is made up of unsettled money, you would need to wait 3 working days before you sell those shares again. If you don’t, you will commit a Good Faith Violation.
An easy way to avoid any issues is to always wait at least 3 working days after you buy shares before you sell them.