As an investor with a brokerage firm, having funds that are not accessible because they are put on hold can be really frustrating. As an E*TRADE user, there are a few situations where your funds could be put on hold. If you are an intending or already existing customer with the broker, it is important to have this information at the back of your mind So, why are your E*TRADE funds on hold?
Your funds on E*TRADE may be on hold and not available for withdrawal or re-investment yet if the settlement period has not elapsed. This settlement period usually lasts 2 to 3 days. Your funds on E*TRADE can also be on hold if they have not yet completely cleared OR because of the method you used while depositing into your E*TRADE brokerage account.
In this article, I am going to talk about the following:
- Funds that have not yet been cleared.
- How the settlement period can put your funds on hold.
- Whether you can trade with unsettled cash
Funds That Have Not Yet Been Cleared.
One of the reasons why your funds may be on hold is because they have not yet cleared. Cleared funds involves money that is being transferred from one account to another. Only when E*TRADE receives all the cash which you transferred to them, will the funds be said to have cleared. Your funds will then only be made available to you after they have been cleared.
How Your Method of Deposit Can Affect Your Access to Funds on E*TRADE.
Another crucial factor that affects the speed at which your funds clear on E*TRADE is the method of deposit you decide to use. E*TRADE has various ways through which you can deposit into your brokerage account. A particular method of deposit you choose to use can put your funds on hold for longer than some other methods. If you feel like your funds take an unnecessarily long amount of time to clear on E*TRADE, you should consider changing your method of deposit next time you deposit.
For example, if you deposit funds via the “direct deposit method” or through “wire transfer”, the funds will not be on hold but will be made available to you immediately. However, if you decide to deposit funds through the “transfer an account” option (available only to new customers) it can be on hold for up to 10 business days when done electronically but if the transfer is done via mail, the funds can be on hold for just 3-6 business days.
How the Settlement Period Can Put Your Funds on Hold.
Another vital reason why your funds can be on hold with E*TRADE is because of the broker settlement period policy. When you sell securities on the market, there is a period designated for transferring the securities to the buyer’s account and also for transferring the cash to the seller’s account. This period is known as the settlement period.
Until the settlement period is over, the funds from the transaction of securities will not be available to you for withdrawal and will be put on hold. This period usually lasts between 2 to 3 days. With this rule imposed on trading by the SEC, the funds you get from trading financial assets will be put on hold until the settlement period is over.
Why are Settlement Periods Important?
Settlement Period are important because they give clearing houses adequate time to guarantee the effective and orderly transfer of cash and securities to their respective accounts. They are also important as they give companies enough time to update their books and records as well as reflect the change of ownership in stocks.
Can You Trade with Unsettled Cash?
As an investor with E*TRADE, you might be wondering if you can trade with unsettled funds on E*TRADE? The answer is Yes. E*TRADE allows you to purchase new securities immediately with unsettled funds but you will not be allowed to withdraw these funds until the settlement period is over. These unsettled funds must however not be used to day-trade otherwise you will incur a good faith violation.
What is Day Trading?
Day trading here simply refers to the act of buying and selling securities in one day or even numerous times in one day. Day trading is not illegal. However, there are a lot of complexities involved in day trading and it should be best left to professional investors. You should be very careful not to day trade with unsettled funds otherwise E*TRADE will restrict your account and could even close it for up 90 days.
What is a Good-faith Violation?
While trading, a good faith violation takes place when you buy a financial asset and sell it without paying for it completely with settled funds. If you commit a good faith violation on E*TRADE more than 3 times in 1 year, E*TRADE will restrict your account for 3 months. If your account is restricted, you will only be limited to buying stocks with funds that have completely settled.
However, if you break good faith violation on E*TRADE more than 4 times in 1 year, E*TRADE might sell off all your stocks and even close your account for up to 12 months. This might sound too harsh but it’s just company policy, so it’s best to avoid breaking any good faith violations on E*TRADE.
In this article, I have explained to you some of the reasons why your funds can be on hold on E*TRADE. Firstly, if you sell securities, your funds will be on hold until the settlement period is over which is usually 2 to 3 days. Also, your funds can be on hold if they are not yet completely cleared. Another important reason why your funds can be on hold is because of the method of deposit you decide to use.
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Till next time…
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