Edit: Please ignore this Opening Post as I am no longer seeking the answer to my question. (I am not deleting the OP because some posters already replied.)
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Schwab has improved their services quite a bit in the last 1 year and am not sure if the following is fixed or still an issue:
In my IRA, in 2024, I placed a sell order for a MM balance I bought within the past 30 days and then tried to buy something else the same day with the MM sell. Schwab did not allow that, even a Rep was not able to override (or at least that is what he said). Schwab required that I wait until the MM sell order settled before I was able to use the funds to buy something else. (No such restriction at Fidelity.)
This was a nuisance for a trading account and forced me to keep a lot of liquidity in cash until I started using ETFs like SGOV as a money market fund. I do not like using ETFs as money market funds because I keep losing on the bid-ask spreads, among other inconveniences.
Has Schwab removed that restriction on MM?
Comments
Q: "Has Schwab removed that restriction on MM? "
A: The only person/entity who can authoritatively answer that is.. Schwab, no?
Anecdotally, my expectation would be that if I have to explicitly place a 'buy'/'sell' order for a MMF, then I would not expect proceeds from a sale of a MMF to be available til the next day -- MMF sell orders presumably execute like any other mutual fund, at the end of the day. So how could funds be available to buy something, if the order is not executed until markets close? -- Fido is the exception as Fido doesn't require buy/sell orders for the MMF being used as the core/clearing position. Its this convenience which FIDO offers for this (among other reasons) that I locate most of my assets there.
to your last point, I've found several of the ultra-short bond ETFs now offering higher yields than MMFs, /so I've repositioned something like +90% of my 'cash' in these, rather than MMFs. I looked at SGOV its trading at ~ $100, with a bid/ask spread of a penny, per the Fido quote. That's an incredibly tight spread, IMO.
No, MM funds are sold at the end of the trading day, and the proceeds are not available until the morning of the next trading day.
I can talk to five different reps at any brokerage and get five different answers. I talked to two of them at Schwab before opening the thread.
"1. You are placing an order without sufficient free cash to cover it, which could result in a margin loan. Please consider selling shares of your Schwab Purchased Money Funds to cover this order. (AC165)"
I have had margin a/c for years, but I don't use margin loans anymore.
Without margin a/c, you are relying on good graces of the brokerage to extend you a penalty-free overnight overdraft.
Of course, margin is N/A or very limited in IRAs, and I do face similar issues there.
This is the message I get when doing it in a IRA:
"1. Caution: This buy order was accepted without sufficient settled funds to trade in your account. If you subsequently sell this security without first delivering sufficient cash by settlement date, you may incur a trading restriction requiring settled cash up front for future purchases. (AC176)
2. You are placing an order without sufficient free cash to cover it. Please remember to deposit sufficient funds or sell shares of your Schwab Purchased Money Funds to cover this order."
The wording to me seems to make this routine.
But now that I'm thinking about this, I wonder why I do this. I think it's just more out of convenience for me to do these trades together vs because I want to time the market. So if I had to, I could just wait the next trading day to actually do the purchase.
- The fund being sold is a MMF. Doesn't matter.
- Margin issues - as Yogi noted, there's no or limited margin in IRAs. Which seems to make purchase w/i last 30 days irrelevant. AFAIK, the only place where 30 days matters on mutual funds is whether they can be used as margin collateral.
I tested out what sfnative described this morning - placing a sell order at Schwab in an IRA and immediately afterward placing a buy order for the expected proceeds (leaving a buffer for market decline). The orders were accepted without any warning. Not surprising since the warning zenbrew quoted about risking a margin loan doesn't apply to IRAs.
I canceled the two orders because they weren't I wanted to make.
The same approach (enter sell order, then separate buy order) also works at Vanguard. There you get a warning about needing to have enough cash come the day of reckoning (settlement day). No mention or margin - just have the cash there (or else!, I guess)
I don't believe the same approach will work at Fidelity. You cannot place a sell order and follow it up online with a buy order, which is what the OP described. In order to do a same day cross-family trade, you must work with a rep who will only enter a buy order for 90% of the current value of the fund being sold. This is to protect against the sale not raising enough cash to cover the buy order, should the market dip.
Fidelity provides an alternate approach for its MMFs. Fidelity uses MMFs to provide automatic "overdraft protection" for your core account. IF you place a buy order (without placing a sell order on the MMF), and the cash in your core account is insufficient, Fidelity will draw upon your other MMFs automatically.
Conceptually it's the same thing as using a savings account at a bank for overdraft protection on your checking account. You don't withdraw money from savings, you just write a large check. As with Fidelity, cash flows automatically only in one direction - savings to checking. A bank doesn't automatically sweep cash from checking to savings.
Finally, when you enter the sell and buy orders, the brokerage is usually not extending you an overnight draft. Rather both transactions typically settle on the same day (T+1). No cash is needed overnight.
A few funds settle in 2 days. If you sell a T+2 fund and buy a T+1 fund or ETF, and it works, then you are relying upon the good graces of the brokerage, as Yogi described. I've done this in an IRA at Fidelity (through a rep) and it's worked.
I've talked with them about how this amounts to a one day loan that I thought was verboten in an IRA. They've told me that this is okay, and that it doesn't rely on limited margin (which I don't have). Whatever. I don't recommend doing trades online with mismatched settlement dates unless a rep confirms that it's okay at your brokerage.
I'm also not sure that if you walk into a branch (or do a mobile deposit) with a check as opposed to a wire) on settlement day that would be acceptable. You should be able to trade immediately (assuming T+1) upon depositing a check, but the cash may not be immediately available to settle a trade or withdraw as cash. Fidelity FAQ When will I have access to my funds?
For completeness - at Vanguard, assuming your settlement account is an MM, there is nothing to do..
However, if I make the transfer into the brokerage sweep account rather than the checking account, the funds are immediately available, transferable to the checking account, and usable there.
I can only infer that the brokerage doesn't worry about the validity of the incoming fund transfer because the brokerage has a whole lot of our stuff that they can grab if there's a problem, but the bank has no such fallback.
I've done that a couple of times at Schwab- walked into a branch, deposited a check into the brokerage sweep account and then immediately placed a MMF buy order for that amount.
Source? Experience?
Fidelity says that if you deposit more than $25K by check you won't be able to trade with the excess until it's been processed (the hold period has expired).
https://www.fidelity.com/customer-service/processing-and-hold-times
If you can't make a trade on Monday with a check deposited on Monday, you certainly can't make a trade on Monday with a check deposited even later, i.e. on Tuesday.
It's only by Fidelity's good graces that it lets you trade sooner with small check deposits.