Yes, in most cases, you can buy $1000 worth of Tesla stock in your Charles Schwab account today, even if you just sold $1000 of IBM stock on the same day.
Here’s why:
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T+1 Settlement: As of May 28, 2024, the standard settlement cycle for most U.S. stock trades (including IBM and Tesla) is T+1. This means the trade “settles” one business day after the trade date.
- What this means for you: When you sell IBM stock, the funds from that sale are generally available for you to use for new purchases almost immediately (on the same day) in your brokerage account, even though the official “settlement” (the actual transfer of cash and securities between accounts) might take until the next business day.
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Brokerage Account Functionality: Brokerage firms like Charles Schwab allow you to trade with the “unsettled” proceeds from a sale. They operate on the assumption that the sale will successfully settle. This is common practice and is how many active traders can buy and sell multiple times within a short period.
Important Considerations:
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Cash Account vs. Margin Account:
- If you have a cash account, you must have sufficient settled cash to cover your purchases. However, brokers typically allow you to use “unsettled funds” from a recent sale for a new purchase on the same day. The key is that you must not sell the newly purchased stock before the initial sale (IBM) has settled to avoid a “Good Faith Violation” or “Freeriding” violation. If you did this repeatedly, your account could be restricted.
- If you have a margin account, you have even more flexibility as you can borrow against the value of your securities.
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Good Faith Violations / Freeriding: While you can buy Tesla with the proceeds from your IBM sale today, you cannot sell the newly acquired Tesla shares until the IBM sale has fully settled (i.e., tomorrow, Friday, June 6, 2025, assuming today is a business day). Selling before settlement is called “freeriding” and can lead to penalties, such as a 90-day trading restriction where you can only trade with fully settled funds.
In summary:
You can almost certainly place an order to buy $10,000 worth of Tesla stock today in your Charles Schwab account using the proceeds from your IBM sale. Just be aware of the settlement rules if you plan on immediately selling the Tesla stock. For typical long-term or short-term investing where you hold the stock for more than a day, this is generally not an issue.
If you have any doubts or plan on very active trading, it’s always best to check with Charles Schwab directly or review their specific trading rules for cash and margin accounts.