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Webull

9 Webull Good Faith Violation Questions (Quick Answers!)

Jamey Muller
Updated: July 14, 2022
6 min read

When you trade in the US stock market with a cash brokerage account, there are 3 types of potential violations that you may be sanctioned if you’re not careful enough, and one of them is known as the good faith violation

Find out under which circumstances they may occur and how to avoid them to keep your account in positive standing.

What Is a Good Faith Violation on Webull?

A good faith violation is only applicable to a cash account.

On Webull, it is when you liquidate a stock/stocks before it was ever paid for with settled funds.

Cash accounts on Webull have a T+2 settlement period. This means that even if you’ve sold a stock, it will take the trading day (or the T) plus 2 business days (or the 2) before the funds are considered settled. 

What Causes a Good Faith Violation on Webull?

Buying a stock with unsettled cash/funds and then selling it before those funds settle causes a good faith violation on Webull.

While it’s possible to purchase new stocks using unsettled funds, Webull only allows you to do so in good faith that you will wait for the funds/proceeds from the original sale to settle before trying to sell/liquidate them.

If you bought and then sold stock with unsettled funds, you are now in violation of that good faith.

Here are a couple of scenarios to help you better understand what counts as a good faith violation:

Scenario 1:

Blake has a cash account without any money or settled funds, but he has TSLA stock.

  • Cash available for trade – $0.00
  • On Monday, Blake sells his TSLA stock for $15,000. This cash is expected to settle on Wednesday (T+2).
  • On the same day (Monday), he purchases AAPL stock for $15,000

This action is not yet going to get him a good faith violation, as he is allowed to purchase other stocks/securities with his unsettled funds.

This will be considered a good faith violation if Blake decides to sell his AAPL stock before Wednesday (T+2 settlement date for the $15,000 TSLA stock he sold) because his account would not have had the funds to fully pay for the purchase.

Scenario 2:

Priyanka’s US brokerage account has fully settled $3,000 worth of funds.

  • Cash available for trade – $3,000
  • On Monday, Priyanka purchases GOOG stock for $3,000
  • On Monday afternoon, she sells the GOOG stock for $3,200. The funds from the sale are expected to settle on Wednesday (T+2).

Because her account was fully funded to pay for the purchase of GOOG stock, this doesn’t count as a good faith violation. However,

  • During the closing hours on Monday, Priyanka purchases $3,200 of GOOG stock again.
  • The next day, she sells her entire holding of GOOG stock and, thus, suffers a GFV.

This happened because the Tuesday trade is now a violation. Why? Priyanka sold GOOG stock before the settlement of funds from the previous purchase of GOOG stock on Monday. 

Remember that she is allowed to purchase stocks with unsettled funds. Granted, she will wait for the funds from her sale of the GOOG stock on Monday to settle before she decides to sell the GOOG stock that she then purchased during the closing hours of Monday again.

Had she waited until Wednesday, that would have meant that the GOOG stock she bought during said closing hours on Monday would have been fully paid for using money that belonged to her.

This way, the proceeds from her sale of the GOOG stock earlier in the day would have already settled into her account. This is the only time she could have sold it again without getting a good faith violation. 

What Happens if You Get a Good Faith Violation on Webull?

The first one or two good faith violations may not have much of an impact on your account other than the fact that they’re there to let you know that certain dishonest practices have consequences (although some people have reported that Webull has penalized them as soon as they got their 2nd one).

Take them as warnings. It’s on the 3rd GFV that Webull starts to impose certain restrictions. 

If you acquire three (3) good faith violations within 12 months, Webull will restrict your account’s buying power for ninety (90) days.

You will no longer be allowed to trade using unsettled funds like you previously were during this particular restriction. Instead, you can only buy new stocks if your account has sufficient settled funds. Think of it as operating in “Safe Mode”, allowing for fewer potential errors.

How Many Good Faith Violations Can You Get On Webull?

Webull only allows up to three (3) good faith violations within 12 months, like other brokerage firms.

This, of course, doesn’t mean that you can’t mess up royally and somehow manage to get more. For example, it can happen if you try to sell multiple stocks using unsettled funds simultaneously within the same day.

Four (4) strikes mean your account automatically gets restricted for ninety (90) days. A fifth one gets your account frozen or closed completely for ninety (90) days. You will have no access to it until that period expires.

How Do You Know if You Got a Good Faith Violation on Webull?

Webull already warns you of the risks of taking such action via a pop-up message when you attempt to sell or liquidate a stock before the funds have settled. It is then up to you if you, for whatever reason, still wish to proceed. 

Where Can You See How Many Good Faith Violations You Have On Webull?

On your Webull mobile app, a tab says “Risk Level”. If you tap on that, there’s a section that explains how they assess risk levels, and right under that, there is a counter that shows how many good faith violations you have

How Can You Avoid a Good Faith Violation on Webull?

The best way to avoid a good faith violation is to ensure that you only buy or sell stocks using settled funds.

Again, “settled funds” means that the money you’re using is already yours, not borrowed from Webull to cover the funds that haven’t settled into your account yet.

We have published a full guide on settled & unsettled cash on Webull here.

How Do You Get Rid of a Good Faith Violation?

There is no way to remove a good faith violation from your account once you already have it.

Cash deposits and stock liquidations can’t help alleviate it either. It does, however, expire 12 months after the month that the violation was incurred.

It should automatically disappear on the 13th month, so your only real option is to wait until it does and try not to add more to your list while you do. It’s still best to practice caution to not jeopardize your account.

Can You Get a Good Faith Violation When Trading Options on Webull?

Unlike all stocks and most mutual funds, trading options only have a T+1 settlement period. This means that money will be able to settle into your account faster, as it only takes the trading day plus one business day. 

According to Webull themselves, the good thing is that options can only be traded using fully settled funds. Since that’s the case, you can be safe in the knowledge that when you’re trading options, it’s not possible to get a good faith violation. 

Sources:

Webull
Firstrade
Winvesta
Investopedia

Written by
Jamey Muller
I'm the head-writer @ Knowledge Eager (or, in plain English, I'm the guy writing the majority of the content here). Addicted to the stock market, football, sushi and tacos.
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Jamey Muller
I'm the head-writer @ Knowledge Eager (or, in plain English, I'm the guy writing the majority of the content here). Addicted to the stock market, football, sushi and tacos.