I tried my best to word this question right, so I will give an example of what I am talking about.

On Monday, you buy 100 shares of Company X.
On Thursday, the original purchase of 100 shares settles.
On Friday, you buy 25 more shares of Company X.

Can I sell the original 100 shares on Friday, without violating the "Free Ride" rule? Or, does the Free Ride rule lump all shares of a particular company together, causing me to have to wait until next week to sell the shares?

Definition of "Free Ride": the Free Ride rule only applies to cash accounts; it does not apply to margin accounts. Selling a security before the original purchase for it clears is called a "Free Ride". In the U.S., when using a cash account, it takes 3 days for a purchase of stock to settle. So, if you purchase stock on Monday, you cannot sell it until Thursday. If you sell it before 3 days, the US Federal Reserve Board's Regulation T requires your broker to "freeze" your account for 90 days.

  • 1
    Country? I'm not familiar with that rule, at least by that name.
    – keshlam
    Apr 11 '16 at 15:06
  • United States. I updated the question to define "Free Ride" Apr 11 '16 at 15:59

Your question is unanswerable as you haven't provided enough information. I.e. If those shares cost $1000 and you have $50000 ( or any number above $1000) of cash available in the account then you can't possibly free ride. I think your understanding of the free ride rule is incorrect.

Basically what this rule is stating is that you have to have the cash when the trade is placed in order to settle the trade. Otherwise you are taking on margin (which you can't do in a cash account). So at order entry you have to have the cash to cover the purchase so it's able to be settled. If you do, no problem and you can sell that stock before trade settlement. There is no law that says you have to hold it past trade settlement. However, you cannot spend the same dollar more than once before it settles.

This site does a good job explaining this more throughly with examples:



You should check with your broker for details, but you can generally specify which "lot" you are selling. where I've seen it, that's done by concurrently sending a "letter of instruction" documenting your choice of lot concurrent with the sale, but different brokers may handle this differently. I would think this should work for the case that you describe. (In addition, the default rule used by your broker is "probably" first-in-first-out, which will do what you want here.)

Note that this may come into play even in a margin account to the extent that you might want to specify a lot in order to obtain (or set yourself up for later benefit of) favorable tax treatment under the long-term capital gains rules

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