Super Stock Picker Forum

Hi, I'm a student and I'm looking to start buying and selling stocks through Questrade.

My strategy is pretty simple - I'm only looking to make pocket money, so I'm going to buy, hold, then sell as soon as I'm just a bit past my commission, so say when I'm $30 or $40 up.

My question is about the term 'free ride'. I've seen it in a few books and on a few forums, but it's never been clearly explained to me.

As I understand it, I can't sell a stock I've purchased until the purchase order is cleared, unless I'm buying on margin. I'm not opening a margin account, since I only have $3000 to invest.

I've also read that a purchase order takes 3 business days to clear! Does that mean that if I buy a stock, I can't sell it for 3 days? That doesn't work with my trading strategy, since if it goes up and I want to close my position a few days, or a few hours later, I want to be able to sell it!

So can anyone explain how this works for me?

TL;DR - can I sell a stock a few hours after I buy it, if I'm not trading on margin?

Without margin it does mean you must wait three days to buy another stock with the cash from the sale of a stock.  It is based on the historical system of actually exchanging paper certificates.  The three days allow for the person to deliver to the recieving broker the actual certificate.  If they did not, the trade would be reversed.  If you could buy a stock without actually having recieved the cash and then the person you sold the previous stock to failed to deliver then there would be a problem.

In today's system of electronic book entry there is really no need for the three days.  While it is technically possible for a failure to deliver I have not heard of anyone having it happen to them in the recent past.

If the trade did get reversed then the shortfall if you did not have a margin account would be made up by the brokerage house capital.  This is not something they would be happy about.  In Canada this is against  IIROC http://www.iiroc.ca/English/About/Pages/default.aspx (http://www.iiroc.ca/English/About/Pages/default.aspx) rules and is illegal in the US.  These rules state that you must recieve the security before you are allowed to sell it unless you have a margin account.

Technically, if you have a shortfall in your account due to decreasing margin during the three days you are not allowed to sell a different security to cover but I would expect that this rule would be overlooked.

D