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What is buying power?

What is buying power?

With regards to Margin Trading, ‘Buying Power’ is a term used to describe how much additional leverage you have given the excess equity in your account.

When your broker or custodian authorizes buying on margin, the purchasing power of your assets can become substantial. Instead of just owning $10,000 worth of stock, you might be able to leverage that to buy $10,000 more, therefore having $20,000 of long exposure even though you only have $10,000.

Of course, at least $5,000 of that new purchase is a loan that you have to repay, and the securities that you leveraged are now at-risk. But the ‘Buying Power’ given to you in margin accounts is relevant and can be a useful tool. The buying power will be equal to the cash and the maximum margin available.

Keywords: trading, risk, equity, margin, buying power, margin leverage,