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Definition of 'Freeriding'

In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding, which violates the credit extension provisions of the Federal Reserve Board. If you freeride, your broker must "freeze" your account for 90 days. This means that while you may still trade, you must fully pay for any purchase on the date you trade during the 90-day freeze. In other words, you won't get the benefit of settling your trades in three days.

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