Freeriding (also known as free-riding or free riding) is a term used in stock trading to describe the practice of buying and selling shares or other securities without actually having the capital to cover the trade. In a cash account, a freeriding violation occurs when the investor sells a stock that was purchased with unsettled funds.
The Federal Reserve Board's Regulation T requires brokers to "freeze" accounts that commit freeriding violations for 90 days. Accounts with this restriction can still trade but cannot purchase stocks with unsettled sale proceeds (stocks take two days to settle).[1] Freeriding can often be avoided by using a margin account.