A Free Riding violation in an IBKR Cash account occurs when an investor sells a security before paying for its purchase with settled funds. A Broker can have rules that are more restrictive than required by regulators and IBKR's implementation of the Free Riding rule uses an end of day check to see if a position was closed prior to its opening trade settlement date.
The consequences of a Free Riding violation include:
- Account Restriction: Your account will be placed under a "Cash Up Front" or trading restriction for 90 days.
- Limited Trading with Settled Funds: During the 90-day restriction period, you can only place new orders using fully settled funds. This means you cannot enter a new opening order with unsettled funds for the duration of the restriction.
- Available Funds Requirement: To place new orders, your cash account's Available Funds (Equity with Loan Value - Initial Margin) must be positive.
It is important to note that while these restrictions are in place, you can always close any open position and still use fully settled cash to enter new opening orders during the 90-day period. This ensures that you can continue some trading activities, albeit with limitations.
To avoid Free Riding violations, always ensure that you have sufficient settled funds in your account before making a purchase, and wait for trades to settle before selling securities purchased with unsettled funds.
For more detailed information on Free Riding violations and related policies, you can refer to the following resources:
Understanding and adhering to these rules will help you maintain unrestricted trading privileges in your Cash account.