Understanding Buying Power in the Purchase of Securities

By: Montana Timpson

Calculating buying power in the purchase of securities may seem like a daunting task, but it is a fairly simple process with the right understanding of your trading strategy and brokerage account options.

Buying Power
Buying power, by definition, is the money an investor has available to buy securities. Often referred to synonymously as “excess equity,” buying power is calculated by finding the total cash held in a brokerage account plus all available margin.

For a non-margin account or cash account, a trader’s buying power is equal to the amount of cash in the account. However, when a trader purchases securities in a leveraged account, referred to as a margin account, it means the trader has taken out a loan based on the amount of cash held in his or her brokerage account.

In general, under Federal Reserve Board Regulation T, firms can lend a customer up to 50 percent of the total purchase price of a margin security for new, or initial, purchases.

Day Trading Buying Power
Day trading buying power is four times the day trader’s maintenance margin excess. This calculation is based on the equity in the customer’s account at the close of business the previous day, less any maintenance margin requirement, multiplied by four for equity securities.

For information on your buying power with Lightspeed Financial Services Group, contact a member of our team today. For further details on a professional trading account with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account now.

Active Trading with Lightspeed
Lightspeed provides professional traders with all the tools required to help them find success in stock trading, and we have been developing and honing our active trader platform to offer an optimal user experience. With the intuitive interface layouts and institutional quality stock and options scanners, we aim to help traders reach their goals, no matter what their strategy is. We also offer our clients some of the lowest trading fees in the industry.

For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account.

Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content are solely based on the users’ independent analyses taking into consideration your financial circumstances, investment objectives, and risk tolerance.

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