A good faith violation (GFV) occurs when you buy a security in your M1 Invest account and then sell it again before the funds you used to make the purchase have fully settled. Understanding how settlement periods and M1’s trading windows work can help you avoid GFVs and the resulting account restrictions.
Understanding settled funds and trade settlement (T+1 Cycle)
Settled funds are cash in your account that has completed the mandatory waiting period after a sale or deposit before being used for new trades.
For stocks and ETFs, the standard U.S. securities settlement period is T+1 (trade date plus one business day). This means when you sell a security, the cash proceeds become available as settled funds on the following business day.
For example: If you sell shares on Monday, those funds are settled and available to fully support new buy or sell orders on Tuesday.
What causes a Good Faith Violation?
A GFV occurs when you:
Use unsettled funds from the sale of a security to purchase a new security.
Then sell the new security before the funds from the first sale have settled (within the T+1 window).
Example of a GFV
Day 1 (Monday): You sell Stock XYZ for $10,000 during the Monday trading window. The proceeds will settle on Tuesday.
Same Day: You immediately use those unsettled funds to buy Stock ABC during the same Monday window.
Later on Monday: You sell Stock ABC before the proceeds from Stock XYZ have settled.
Result: Because ABC was sold before the original funds from XYZ had settled, a good faith violation has occurred.
Note: To avoid GFVs, you can wait for sales to fully settle (T+1) before selling securities purchased with those funds.
Who can experience Good Faith Violations?
Good faith violations may occur in any non-margin (cash) M1 Invest account, including:
Brokerage accounts (individual and joint)
Traditional IRAs, Roth IRAs, and other retirement accounts
M1 trading windows and GFVs
M1 processes orders in scheduled batch windows rather than real-time execution. This means:
Sells and buys placed in the same window use proceeds that have not yet settled.
If you sell new positions before the original funds are settled (even if between batch windows), a good faith violation will result.
Consequences of Good Faith Violations
M1 tracks GFVs on your account:
If you incur four GFVs in a 12-month period, your account will be restricted from further trading for 90 days, except for closing transactions.
After a fourth GFV, you may be required to contact M1 Client Success to place trades and avoid a fifth violation.
A fifth GFV triggers an automatic 90-day restriction. During this restriction:
You cannot buy new securities (purchases are blocked)
Only closing trades (selling shares you already own) are allowed
Deposits and withdrawals may still be permitted
Practical tips to avoid Good Faith Violations
Allow your sale proceeds to settle (wait at least one business day) before selling newly purchased securities.
Use only fully settled cash to buy securities you may need to sell quickly.
Familiarize yourself with how M1’s trading windows affect settlement and order timing.
Review your account for settlement status and recent activity before placing new trades.
Note: Avoiding GFVs helps you continue to trade freely and avoids account restrictions.
Frequently asked questions
What happens if my account is restricted due to GFVs?
For 90 days, you may only sell securities already held in your account (no new purchases allowed). You may need to work with M1 Client Success to manage your trades during this time.
Does a deposit of new funds count as settled?
Yes, once funds from a deposit have fully cleared (which may take a few days), they are considered settled and can be used without risk of GFVs.
This content was generated using artificial intelligence and is intended for informational and educational purposes only. While reasonable efforts are made to ensure accuracy, AI-generated outputs may omit key context; and should not be construed as financial, investment, legal, or tax advice. Users should independently verify all information and consult a qualified professional before making any financial decisions.
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