What are the cash account rules?

By default, your etoro Options account is a cash account. The Federal Reserve Board’s Regulation T (or Reg T) governs the use of a cash account to purchase securities.

Simply put, you can make purchases without limit as long as settled funds are used for such purchases. Any or all of the purchases may be sold the same day but proceeds from such sales may not be used for further purchases until the following trading day.

There are several potential cash account violations to be aware of when trading in cash accounts:

• Good Faith Violations

A Good Faith Violation (GFV) occurs when you purchase a security with unsettled funds and subsequently sell it prior to the funds settling.

If you incur 3 Good Faith Violations within a 12-month period, we’ll notify you via email notification and your account will be restricted from trading for 90 days.

Learn more here.

• Cash Liquidation Violations

A Cash Liquidation Violation occurs when you purchase a security and pay for it with unsettled funds from selling fully paid securities. This is because industry regulations require you to have fully settled funds to pay for security purchases upon settlement.

If you incur 3 Cash Liquidation Violations within a 12-month period, we’ll notify you via email and your account will be restricted from trading for 90 days.

• Free Riding Violations

A free riding violation occurs when you purchase a security and pay for the transaction by selling the same security. This constitutes a violation of Regulation T as the stock is not fully paid for prior to selling it.

If you incur 1 Free Riding Violations within a 12-month period, your account will be restricted. This means you will only be able to purchase securities with fully settled funds for a 90-day period.