What Is a Blocked Period?

A blocked period refers to the length of time in which an investor’s securities are prevented from being accessed. A blocked period may be put in place if an investor has used a security as collateral, as it prevents the investor from using the same security as collateral or from selling the security. It may also refer to a 𝓡period in which an investor cannot access account funds.

How a Blocked Period Works

Blocked periods denote periods where an investor cannot access their assets. Brokerages and 澳洲幸运5官方开奖结果体彩网:financial institutions may place a hold on the securities in an investor’s account for several reasons. Reasons include the investor being labeled a 澳洲幸运5官方开奖结果体彩网:day trader using a 澳洲幸运5官方开奖结果体彩网:margin account, or the investor using a security a💙s collateral in a trade.

Investors who trade frequently may be considered to be day traders by the 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commission ღ(SEC). This label may bring with it requirements for how much money must be available in the investor’s account at a particular point in time. A 澳洲幸运5官方开奖结果体彩网:pattern day trader label is given if an investor buys or sells stocks using a margin account more than a defined number of times during a week.

Brokerages may be required to block an account for a period if the account holder buys or shares securities without having sufficient capital to complete the trade, referred to as 澳洲幸运5官方开奖结果体彩网:freeriding. The specific regulation governing this is part of 澳洲幸运5官方开奖结果体彩网:Regulation T and specifically relates to cash accounts.

For novice traders, familiari♍zing oneself with these rules beforehand will make life a lot easier because a blocked period can come as a surprise to those unaware of the rules/laws. A lot of these rules are in place to protect both the investor and t🐽he broker-dealer.

An Example of a Blocked Period

If an investor with a 澳洲幸运5官方开奖结果体彩网:cash account tries to purchase share🎐s with funds that have not yet been 💙settled from a previous trade, the brokerage firm's compliance and trade monitoring department may issue a blocked period. The blocked period lasts 90 days.

During this time, the investor may make purchases, but only with completely settled funds. Investors can avoid this type of blocked period by trading on margin, though margin accounts are subject to other rules regarding 澳洲幸运5官方开奖结果体彩网:minimum balances.

If this investor has $5,000 in their cash account and decides to buy 100 shares of ABC for $50 per share, they transact the trade. If a day later they decide to sell the shares for $52 per share, they will be blocked because the funds have not had the chance to settle from the purchase when the investor sold it.

Generally speaking, U.S. equities clear T+2 days after the trade date for trades prior to May 28, 2024, and T+1 days thereafter. So, if the purchase of ABC happened on a Monday, the investor would not be able to sell that security until the settlement date of Wednesday at the earliest under the T+2 rule, or Tuesday under the T+1 rule.