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Buying Power Formula:
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Buying power refers to the total amount of funds available to an investor for purchasing securities in a brokerage account. It represents the maximum purchasing capacity considering both cash and margin capabilities.
The calculator uses the buying power formula:
Where:
Explanation: Buying power combines your actual cash balance with the margin borrowing capacity offered by your broker, allowing for larger investment positions than cash alone would permit.
Details: Understanding your buying power is crucial for effective portfolio management, risk assessment, and strategic trading decisions. It helps investors maximize their investment potential while maintaining awareness of leverage exposure.
Tips: Enter your available cash balance and margin available amounts in currency units. Both values must be non-negative numbers representing actual account balances.
Q1: What is brokerage buying power?
A: Brokerage buying power refers to the total amount you can invest using both your cash and margin borrowing capacity provided by your brokerage firm.
Q2: How does margin affect buying power?
A: Margin increases your buying power by allowing you to borrow funds from your broker, typically providing 2-4 times more purchasing power than cash alone.
Q3: What factors determine margin available?
A: Margin availability depends on your account type, equity, broker's margin requirements, and the specific securities you wish to purchase.
Q4: Are there risks with using margin?
A: Yes, using margin amplifies both gains and losses. Margin calls can occur if account equity falls below maintenance requirements.
Q5: How often does buying power change?
A: Buying power changes with market fluctuations, deposits/withdrawals, trading activity, and changes in margin requirements.