Buying Power Calculator (Margin Account)
Magdy Hassan
Buying Power Calculator (Margin Account)
Estimate your stock buying power based on your cash balance, initial margin requirements (like Regulation T), and potential day trading leverage.
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Estimated Buying Power:
Regulation T Buying Power (for overnight holds):
Day Trading Buying Power (Intraday):
Day Trading Buying Power typically requires meeting Pattern Day Trader criteria (>$25k equity) and is based on margin excess, not just cash; this is a simplified estimate.
Understanding Buying Power in Margin Accounts
Buying Power refers to the total amount of money an investor has available to purchase securities in a brokerage account. In a margin account, this includes both the investor's own cash and the money the broker is willing to lend (margin).
Regulation T (Reg T) Buying Power:
- Governed by the Federal Reserve Board, Regulation T sets the **Initial Margin Requirement** for purchasing securities on margin, typically **50%** for most stocks in the U.S.
- This means you must initially fund at least 50% of the purchase with your own equity (cash or fully paid securities).
- The resulting buying power for new purchases held overnight is generally **2 times your available cash** (or excess margin).
- Formula Used: Reg T Buying Power = Cash Balance / (Initial Margin Requirement / 100)
Day Trading Buying Power (DTBP):
- This applies specifically to **Pattern Day Traders (PDTs)** - those who make four or more day trades (buying and selling the same security on the same day) within five business days in a margin account.
- PDTs must maintain a minimum account equity of **$25,000**.
- FINRA rules allow PDT accounts to trade with higher intraday leverage, often up to **4 times** their margin excess (equity above the maintenance margin requirement) at the start of the day.
- Simplified Formula Used Here: Day Trading Buying Power ≈ Cash Balance × Day Trading Multiplier
- **Important:** Real DTBP calculation is based on margin excess, which can differ from just cash. This calculator provides a simplified estimate using the cash balance. Exceeding DTBP can lead to restrictions.
Risks of Margin Trading:
- Amplified Losses:** Just as margin magnifies potential gains, it also magnifies potential losses. You can lose more than your initial investment.
- Margin Calls:** If your account equity falls below the broker's maintenance margin requirement (usually 25-40%), you'll receive a margin call, requiring you to deposit more funds or sell securities, potentially at a loss.
- Interest Charges:** You pay interest on the amount borrowed from the broker.
- Liquidation:** The broker can force the sale of securities in your account without notice to meet a margin call.
Margin trading is complex and involves significant risk. It's generally suitable only for experienced investors who understand these risks.
Frequently Asked Questions (FAQs)
1. What is a margin account?
A brokerage account where the broker lends the customer cash to purchase securities. The loan is collateralized by the cash and securities in the account.
2. What is Regulation T (Reg T)?
A Federal Reserve rule governing the initial extension of credit by brokers for purchasing securities. It sets the initial margin requirement, currently 50% for eligible stocks.
3. How is Reg T Buying Power calculated?
It's typically calculated as Cash Available (or SMA/Margin Excess) divided by the Initial Margin Requirement percentage. With a 50% requirement, it's roughly 2 times the available cash/equity.
4. What is Day Trading Buying Power (DTBP)?
The amount of marginable securities a Pattern Day Trader can buy and sell within the same day, typically up to 4 times their margin excess above the $25k minimum equity requirement.
5. Who is a Pattern Day Trader (PDT)?
According to FINRA rules, someone who executes 4 or more day trades within 5 business days in a margin account, provided those trades represent more than 6% of the account's total trading activity during that period.
6. What is the $25,000 minimum for PDTs?
Pattern Day Traders must maintain a minimum account equity of $25,000. If the equity drops below this level, day trading is restricted until the minimum is restored.
7. Is the Day Trading Buying Power calculated here exact?
No. This calculator uses a simplified estimate (Cash × Multiplier). Actual DTBP provided by brokers is based on margin excess (account equity minus maintenance margin requirements) at the start of the day and can be more complex.
8. What is a margin call?
A demand from your broker to deposit additional money or securities into your margin account when its equity falls below the required maintenance margin level.
9. Can I lose more than I invest with margin?
Yes. Because you are borrowing money, if the value of your securities drops significantly, you could potentially owe the broker more than the value of your account, requiring you to cover the difference.
10. Does buying power change during the day?
Yes. As you make trades and the value of your positions fluctuates, your available buying power and margin excess change throughout the trading day.
Examples (USD Estimates)
Assuming 50% Initial Margin Requirement and 4x Day Trading Multiplier:
- Cash $10,000:** Reg T BP ≈ $20,000. Day Trading BP ≈ $40,000 (but requires >$25k equity for PDT status).
- Cash $30,000:** Reg T BP ≈ $60,000. Day Trading BP ≈ $120,000 (meets PDT equity minimum).
- Cash $100,000:** Reg T BP ≈ $200,000. Day Trading BP ≈ $400,000.
- Cash $5,000:** Reg T BP ≈ $10,000. Day Trading BP ≈ $20,000 (cannot actually day trade as PDT due to <$25k equity).
- Different Margin Req (e.g., 30%):** Cash $50,000, Margin Req 30%. -> Reg T BP ≈ $166,667 ($50k / 0.30). Day Trading BP ≈ $200,000 ($50k * 4).
- Different Multiplier (e.g., 2x):** Cash $50,000, Margin Req 50%, Multiplier 2x. -> Reg T BP ≈ $100,000. Day Trading BP ≈ $100,000.
- Large Cash Balance:** Cash $250,000. -> Reg T BP ≈ $500,000. Day Trading BP ≈ $1,000,000.
- Minimum PDT Equity:** Cash $25,000. -> Reg T BP ≈ $50,000. Day Trading BP ≈ $100,000.
- Using Reg T Power:** Buy $30,000 stock with $50,000 cash. -> Used $15,000 cash + $15,000 margin. Remaining Reg T BP ≈ $20,000.
- Using Day Trade Power:** Buy $80,000 stock intraday with $50,000 cash. -> Using Day Trade BP. Must sell before close or potentially face margin call if exceeding Reg T limit overnight.
Note: These are simplified estimates. Consult your broker for exact buying power figures and rules. Margin trading involves substantial risk.
