Buying Power Example
This example demonstrates the calculation of Buying Power through a series of transactions, and shows how Day Trade Buying Power can exceed Overnight Buying Power.
| Start of Day 1 | |
|---|---|
| Cash Balance | $25,000 |
| Positions | None - Market Value = $0 |
| Margin Equity | $25,000 |
| Maintenance Requirement | $0 |
| Maintenance Excess | $25,000 |
| Day Trade Requirement | $0 |
| Day Trade Buying Power | $100,000 |
| Overnight Requirement (Regulation T) | $0 |
| Overnight Buying Power (Regulation T) | $50,000 |
Assume the only transaction for the day is the purchase of 1,000 shares of XYZ at $50 per share.
The purchase amount of $50,000 is deducted from the Day Trade and Regulation T Buying Power.
| Day 1 Post Transaction | |
|---|---|
| Cash Balance | ($25,000) |
| Positions | 1,000 XYZ priced at $50, Market Value = $50,000 |
| Margin Equity | $25,000 |
| Maintenance Requirement | $12,500 |
| Maintenance Excess | $12,500 |
| Day Trade Requirement | $12,500 |
| Day Trade Buying Power | $50,000 |
| Overnight Requirement (Regulation T) | $25,000 |
| Overnight Buying Power (Regulation T) | $0 |
Assuming XYZ closed at $55, our account status at the start of day 2 will be:
| Start of Day 2 | |
|---|---|
| Cash Balance | ($25,000) |
| Positions | 1,000 XYZ priced at $55, Market Value = $55,000 |
| Margin Equity | $30,000 |
| Maintenance Requirement | $13,750 |
| Maintenance Excess | $16,250 |
| Day Trade Requirement | $13,750 |
| Day Trade Buying Power | $65,000 |
| Overnight Requirement (Regulation T) | $27,500 |
| Overnight Buying Power (Regulation T) | $5,000 |
Assume XYZ continues to increase in value and is sold at $65.
| Day 2 Post Transaction | |
|---|---|
| Cash Balance | $40,000 |
| Positions | $0 |
| Margin Equity | $40,000 |
| Maintenance Requirement | $0 |
| Maintenance Excess | $40,000 |
| Day Trade Requirement | $0 |
| Day Trade Buying Power | $65,000 |
| Overnight Requirement (Regulation T) | $0 |
| Overnight Buying Power (Regulation T) | $80,000 |
Notice that Day Trade Buying Power does not change. Day Trade Buying Power cannot increase above the start of day value. Overnight Buying Power will be credited when positions are closed.
If an order to buy 1,000 shares of ABC at $75 per share is entered, you will receive a Buying Power Warning message informing you that a Day Trade margin call may be issued if you close the ABC position today.
If you plan to hold the position overnight, and accept the order, the account status will be:
| After Buy of ABC | |
|---|---|
| Cash Balance | ($35,000) |
| Positions | 1,000 ABC priced at $75, Market Value = $75,000 |
| Margin Equity | $40,000 |
| Maintenance Requirement | $18,750 |
| Maintenance Excess | $21,250 |
| Day Trade Requirement | $18,750 |
| Day Trade Buying Power | ($10,000) |
| Overnight Requirement (Regulation T) | $37,500 |
| Overnight Buying Power (Regulation T) | $5,000 |
At this point, Day Trade Buying Power has been exceeded. If the newly purchased ABC shares are sold today, a Day Trade margin call will be issued. If the position is held overnight, the account will be in good standing.
The following business day, the account status will be:
| Start of Day 3 | |
|---|---|
| Cash Balance | ($35,000) |
| Positions | 1,000 ABC priced at $75, Market Value = $75,000 |
| Margin Equity | $40,000 |
| Maintenance Requirement | $18,750 |
| Maintenance Excess | $21,250 |
| Day Trade Requirement | $18,750 |
| Day Trade Buying Power | $85,000 |
| Overnight Requirement (Regulation T) | $37,500 |
| Overnight Buying Power (Regulation T) | $5,000 |
If an order to buy 500 XYZ shares at $60 is entered, it will exceed Overnight Buying Power, but not Day Trade Buying Power. You will receive a Buying Power Warning informing you that Overnight Buying Power will be breached if you place the trade.
If the trade is accepted, the account status will be:
| Day 3 Post Transaction | |
|---|---|
| Cash Balance | ($65,000) |
| Positions |
1,000 ABC priced at $75, Market Value = $75,000
500 XYZ priced at $60, Market Value = $30,000 |
| Margin Equity | $40,000 |
| Maintenance Requirement | $26,250 |
| Maintenance Excess | $13,750 |
| Day Trade Requirement | $26,250 |
| Day Trade Buying Power | $55,000 |
| Overnight Requirement (Regulation T) | $52,500 |
| Overnight Buying Power (Regulation T) | ($55,000) |
The newly purchased shares should be closed today in order to avoid a margin call.
In the calculation of Overnight Buying Power, unrealized losses are included as well as unrealized gains. However, unrealized gains are only included to the extent of unrealized losses because they can only offset unrealized losses; they cannot increase overall Buying Power. Therefore, an increase in Buying Power will not be evident until the following day.