How Soon Can You Sell Stock After Buying It? | Rules, Regulations and Fees to Be Aware Of

December 10, 2021 | Editorial Team

Investors can make money on stocks by buying and selling them at the right time. You need to have the ability to execute these two key decisions. The answer depends on whether you are aware of the restrictions imposed by your broker or the Financial Industry Regulation Authority (FINRA).

When selling stock, it is more challenging to come up with a decision. On the other hand, buying stocks is very simple. You might risk leaving stock gains on the table if you sell early and the stock goes up. The stock might plunge if you sell too late, making you miss the opportunity. In this article, we focus on “how soon can you sell a stock after buying it.”

When to Sell a Stock

Investors find trouble when selling stocks due to a reason rooted in greed that overcomes someone’s rational judgment. Sometimes your emotions and psychology might get in the way of coming up with a smart decision. You should research the companies, the markets, and projected yearly earnings before deciding when it is right for you to sell.

When deciding what stock to sell, you should spread yourself across several sectors that generate high and steady returns, especially tech companies. However, if you rely on finding individual winning stocks, you will most likely fail.  Stock investment needs a long-term investment mind, which is exactly what these Canadian stocks are about. However, long-term investors (see blue-chip stocks) may worry about the stock market if the shares are not up for sale.

There are several combinations of extrinsic and intrinsic factors that may trigger the selling decision of an investor. Let us get started on these strategies that investors can use to determine whether it is a good time to sell stock or not.  On a side note, if you are a beginner at the stock market, getting a robo advisor to help you make a viable investment plan could be a great idea.

Intrinsic Reasons to Sell

Intrinsic reasons are factors that relate to the stock itself and the markets.

If You Make a Mistake in Your Initial Buying Decision 

If you bought a stock because it looked attractive, but now the price has dropped, then you should consider selling it. Selling the stock is the best course of action despite losing money on the trade. In the future, you should avoid making the same mistake again by restraining from chasing hot stocks that can drain you financially.

When the Market Conditions Are Unsteady

If you buy a stock during a wobbly market, you risk losing money even if the stock increases in value. It is better to wait until the market turns around before investing.

For example, if the market has been going down for weeks, there could be a good chance that the stock will decline.

a man watching trading graphs on two laptops

When a Rival Company Issues Bad News Tax

A competing company could issue negative news about the problems impacting a particular sector in a bellwether corporation, affecting the stock price. Such scenarios are convincing to justify selling your stock unless you are sure it won’t be affected by the problems from the sector.

When the Price Rises Drastically

If the price of a stock rises dramatically, many people want to sell it, which isn’t always the wisest path to take. Investors should do some research to find out the reason behind stock gains. Depending on their findings, they can sell a portion or entire stock position, putting a stop order to sell the rest of it that falls below a particular price.

When the Stock’s Fundamentals Decline

The quarterly earnings may be the first warning of deteriorating stock fundamentals. When a company’s fundamentals deteriorate, investors should analyze whether it is permanent or temporary. However, it might not be that simple unless you exist and sell the position first, then plan on evaluating whether you need to buy it back later.

a person typing on laptop

Here are some of the reasons why the fundamentals of stock may deteriorate:

  • Lower margins and higher costs
  • Rising competition
  • Dwindling earnings and revenue growth

Extrinsic Reasons to Sell

Extrinsic reasons are factors that relate to the financial lifestyle of the investor.

Financial Reasons

Investors might sell stock that is gaining so much compared to the rest of the portfolio to rebalance it. In other terms, the investor sells stock at a loss to eliminate capital gains other investments might realize for tax purposes. Another factor that can justify selling a stock is when an investor requires funds to invest in a competitive venture or to raise capital to expand their projects as we already explained in the Canada Nickel post.

Lifestyle Reasons

An investor may decide to sell a stock when they need extra cash to pay off debts or expenses. Some investors sell stocks when they feel like they have lost control of their investment decisions and are trying to reduce their risk exposure. Parents might also sell stocks for their children’s welfare, like education.

Can You Sell Stocks Instantly After Buying?

Although there are limitations, it is impossible to sell stocks the minute or hour you buy them. The first thing to know about selling stocks is that you cannot sell them immediately after buying them. Certain rules govern this process.

However, if you go ahead and sell soon, you might commit a trading violation of the free-riding rule. If you violate the free-riding rule, the brokerage firm will free your trading account for 90 days. The Securities and Exchange Commission (SEC) seeks to avoid circumstances where shares are in circulation before reaching a designated account.

Can You Buy and Sell Stocks on the Same Day?

If you buy and sell stocks from the stock market on the same day, it is called day trading. However, day trading has some restrictions which investors need to be aware of. If you are not a well-experienced and capitalized trader, day trading will result in losses (see also day trading in Canada). Brokers and the Financial Industry Regulation Authority might restrict the activity in your trading account.

The order of the trades does not matter as you can buy and sell stock more than four times on the same market day within five business days. However, you can still avoid this pattern day trader rule if you buy stocks today and sell them the next day. You don’t have to make a habit of daily trading as it can result in substantial losses.

If you want to engage in daily stock trades, you must meet some trading fees depending on the brokerage firm. A discount brokerage firm may charge you as low as $10 or even less for common stock trades. However, a full-service broker may charge you as much as $100 per deal or even more. Here are some requirements you need to meet to engage in daily trading:

  • Hold securities in your stock investments account
  • Hold a maximum of $25,000 in a margin account
  • The company must authorize you to buy stocks on margin from the broker firm.

Can You Repurchase a Stock After It Is Sold?

You can repurchase stock after you sell it any time you wish. But you should be aware of the terms used by the IRS, including wash sale rules that apply to the selling of a security and the subsequent repurchasing of the same security. Wash sale rules prohibit investors from purchasing the stock before 60 days. The tax rule is the one that imposes the 60-day waiting period.

When you sell a stock for a tax loss, you can only wait for at least 60 days to repurchase it. However, if you purchase before the completion of the 60 days, then your loss will not be allowed as a tax loss. Investors sell shares at a loss, intending to purchase them back, using the loss as a tax write-off.

Investors who purchase the stock within 60 days can trigger a wash sale—for instance, selling stocks of the Vanguard S&P 500 ETF and buying stocks of the SPDR S&P 500 ETF. Investors can also trigger a wash sale loss exclusion if they purchase stocks in the name of a family member.

The wash rule doesn’t apply when it comes to profit-making stock sales. Investors can purchase stocks anytime they want, and the tax consequences of selling the stocks will remain the same. The 60-day waiting period also applies to stocks you sell for a loss.

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What Is the 3 Day Rule in Stocks?

You can also sell stocks immediately after buying them because there is no restriction on holding a stock for three days. However, you cannot trade more than once every three days following a substantial drop in the stock price. So, you should wait until you complete one cycle of trading before you start another.

Before 2017, the shortest time frame you could hold onto stock was three days after purchasing them. However, SEC shortened the time frame from three to two days afterward. Waiting for two days allows the transfer cycle to run its course until the settlement date successfully. Even though the older three-day rule is no longer a requirement, some investors continue to observe it.

The Bottom Line

A good stock sale generates profit. If you have made any profit, you should consider holding onto the stock to reap even bigger profits. It would be best if you also kept in mind that there are many different ways to trade stocks.

Some investors prefer to make small investments, like in small-cap stocks or penny stocks, while others make big ones. It all depends on what suits you best. Lastly, you need to understand the rules and regulations set by your broker or FINRA so that you can make the most out of your investment.