IRA Trading - Avoiding Free-riding (Fidelity)

[Atari 10]

Hello,

 

I'm new to trading with an IRA and would like to avoid free-riding. Currently using Fidelity and there are various warnings posted during buys & sales of stock, but I'm not sure which ones would amount to a free ride situation.

 

 

Example:

 

- $55,000 in the account

- Day 1: Buy 1,000 shares MSFT at $50.0 (-$50k)

- Day 2 morning: Sell 1,000 shares MSFT at $52.00 (I would get a warning)

 

Could I then turn around on Day 2 and buy say $50,000 worth of stock again? Or do I need to wait for some period of time to pass before the original money "settles" to avoid a free-ride situation? :crap:

[EatSleepTrade 10]

From my understanding this is how it works.

 

Your example:

 

Account size: $50,000

 

Monday - buy 1000 shares for 50,000

 

Tuesday - sell 1000 shares for 52,000. (this transaction also has a 3 day clearing period)

 

Wednesday - you want to buy 1000 shares @ 50.00 again for 50,000. this is fine. ( but understand that these shares you just bought are on "borrowed money" till your sell transaction from Tuesday clears in 3 days on Friday. meaning you can't sell these 1000 shares till Friday. If you sell before Friday you will then get a free riding ticket.

 

Second example:

 

Account size $50,000

 

Monday - Buy 500 shares of a 50.00 stock for 25,000

 

Tuesday - sell 500 shares at 52 each for 26,000 ( 3 day clearing period)

 

Wednesday - buy 500 shares back at 50.00 for 25,000 (now even though your shares from Tuesdays transaction have not cleared you are able to sell these shares with out getting a free ride ticket because you have the capital in your account to back it up.)

 

Hope that helps!