A Freeriding Violation occurs when you buy and sell a security before paying for the position. To better explain this, please see an example below.
- On Monday, you deposit cash and buy ABC stock.
- On Tuesday, you sell the same ABC stock.
- On Wednesday, your cash deposit used to fund the ABC purchase fails or is returned.
Because the funds from the deposit used to buy the stock failed or were returned after the sale, the trade(s) were never fully paid for, leading to a freeriding violation.