Be careful about free riding when using online brokers. When I started college, I also started flipping around penny stocks with about $800 or so dollars that I had left over from my student loans. I got a little momentum going, and was trading a couple of penny stocks quickly, and made a small profit along the way. Unfortunately, at the time I knew nothing about settlement dates, and free ride trading.
I remember my account said I had $900 or so dollars available for trading, and something like twenty nine cents in settled funds. I went to go buy another penny stock, and I got a little message telling me about free riding. I figured for some odd reason it wouldn't apply to me or something along those lines, and bought the penny stock, and sold the stock the same day.
After the weekend, I got a nice call from Scottrade and had to explain that I was just a stupid college student. That excuse didn't go over very well, and they told me if it happend again, my account would be frozen.
The moral of this story is, that if your playing with a lot of penny stocks, you have to have a lot of cash in your account. If you only have a small amount of money, and it takes three days for transactions to settle, you will run out of money early in the week.
It is okay to use unsettled funds to buy other stocks that you wish to keep for a while. It is just illegal to sell the stock s you purchase with unsettled funds, before the funds are settled. You can get away with this, if you purchase stocks with unsettled funds, and deposit more money into your account.
