Adjusted Debit Balance

Adjusted Debit Balance

An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA). An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA). Under Regulation T, one can borrow up to 50% of the purchase price of securities on margin. Debit balances can be contrasted with credit balances, which are funds owed to a customer's margin account by their broker. A debit balance, in general, is what a customer owes their broker in a margin account — an account that lets investors borrow funds to purchase securities, provided they have cash or securities in it to pledge as collateral and pay the lender a periodic interest rate. The use of trading margin (leverage) in an investment account for the purpose of buying securities amplifies the gains or losses associated with those trades. The adjusted debit balance informs investors how much they owe in the event of a margin call — a demand for additional cash or securities to bring a margin account up to the minimum maintenance margin. An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA). To help curtail significant losses experienced by brokerage firms and investors due to unregulated margin trading, Regulation T (REG T) guidelines and the 50% rule was established, stipulating that an investor can borrow up to 50% of the purchase price of a security on margin.

An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA).

What Is an Adjusted Debit Balance?

An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA). Debit balances can be contrasted with credit balances, which are funds owed to a customer's margin account by their broker.

An adjusted debit balance is the amount in a margin account that is owed to the brokerage firm, minus profits on short sales and balances in a special miscellaneous account (SMA).
Under Regulation T, one can borrow up to 50% of the purchase price of securities on margin.
Debit balances can be contrasted with credit balances, which are funds owed to a customer's margin account by their broker.

How Adjusted Debit Balances Work

A debit balance, in general, is what a customer owes their broker in a margin account — an account that lets investors borrow funds to purchase securities, provided they have cash or securities in it to pledge as collateral and pay the lender a periodic interest rate.

The use of trading margin (leverage) in an investment account for the purpose of buying securities amplifies the gains or losses associated with those trades. To help curtail significant losses experienced by brokerage firms and investors due to unregulated margin trading, Regulation T (REG T) guidelines and the 50% rule was established, stipulating that an investor can borrow up to 50% of the purchase price of a security on margin.

Reg T limits the amount of credit an investor can get from their broker to buy securities on margin.

The adjusted debit balance informs investors how much they owe in the event of a margin call — a demand for additional cash or securities to bring a margin account up to the minimum maintenance margin. This balance is made available to clients regularly, ensuring that they can always keep tabs on any borrowed funds that they are required to pay back to the brokerage firm.

The Financial Industry Regulatory Authority (FINRA) has set the minimum maintenance margin at 25% of the total value of the securities in a margin account. However, broker firms often require that their customers hold more equity.

Special Considerations

Investors should be aware of the implications of trading on margin and the importance of regularly checking the debit balance of a margin account.

Brokers have the power to demand that customers increase the amount of capital they have in the account at any time. They are also permitted to sell the securities in them, sometimes without even consulting with the investor, to meet whatever maintenance margin has been specified and to sue customers who carry a negative balance and fail to fulfill a margin call.

Related terms:

Brokerage Company

A brokerage company's main responsibility is to be an intermediary that puts buyers and sellers together in order to facilitate a transaction.  read more

Buying On Margin

Buying on margin is the purchase of an asset by paying the margin and borrowing the balance from a bank or broker.  read more

Credit Balance

Credit balance refers to the funds generated from the execution of a short sale that is credited to the client's account. read more

Debit Balance

The debit balance in a margin account is the amount owed by the customer to a broker for payment of money borrowed to purchase securities. read more

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority (FINRA) is a nongovernmental organization that writes and enforces rules for brokers and broker-dealers. read more

Leverage : What Is Financial Leverage?

Leverage results from using borrowed capital as a source of funding when investing to expand a firm's asset base and generate returns on risk capital. read more

Maintenance Margin

Maintenance margin, currently at 25% of the total value of the securities, is the minimum amount of equity that must be in a margin account. read more

Marginable

Marginable securities trade on margin through a brokerage or other financial institution. read more

Margin Account and Example

A margin account is a brokerage account in which the broker lends the customer cash to purchase assets. When trading on margin, gains and losses are magnified. read more

Margin Call

A margin call is when money must be added to a margin account after a trading loss in order to meet minimum capital requirements. read more