In a brokerage account, buying power is the maximum dollar amount you can commit to new trades at this moment. What buying power means in stocks depends on your account type: in a cash account it equals your settled cash, and in a margin account it can be two or even four times your equity, depending on whether you’re trading overnight or intraday. The number updates continuously as prices move, orders fill, and cash settles, so the figure on your screen at 10 a.m. may look different by noon.
The Two Building Blocks
Every buying power calculation starts with cash and equity. Cash is money that has completed the transfer process after a deposit or a prior sale. Equity is the current market value of the securities in your account minus anything you owe the brokerage, such as a margin loan balance. Your platform adds these together, subtracts funds already earmarked for open orders, and displays the result.
The gap between settled and unsettled cash matters more than most new investors expect. When you sell a stock, the proceeds don’t land instantly. Since May 28, 2024, most U.S. equity transactions settle on the next business day after the trade, a cycle known as T+1.1U.S. Securities and Exchange Commission. SEC Chair Gensler Statement on Upcoming Implementation of T+1 Settlement Cycle Unsettled proceeds may show up in your balance, but depending on your account type and your brokerage’s policies, they may not be available for new purchases until settlement completes.
Buying Power in a Cash Account
A cash account keeps things simple. Your buying power is a one-to-one reflection of the money you actually have. Deposit $5,000, and your buying power is $5,000. Federal rules require that stock purchases in a cash account be paid for in full, with no borrowed funds involved.2GovInfo. Federal Reserve System 12 CFR 220.8 – Cash Account You cannot spend more than you have, and the brokerage will block any order that exceeds your settled balance.
If you sell shares on Monday morning under T+1, those proceeds typically settle by Tuesday. Some brokerages let you reinvest unsettled funds in the meantime, and others restrict their use. Either way, the rules governing unsettled cash are strict, and breaking them can freeze your buying power for months. Repeated good-faith violations, or a single freeriding violation, generally trigger a 90-day restriction to settled-funds-only trading, which shrinks your effective buying power to whatever cash has already cleared.
Buying Power in a Margin Account
A margin account lets you borrow money from your brokerage to buy securities, and that borrowed money directly inflates your buying power. The Federal Reserve’s Regulation T sets the initial margin requirement at 50% of the current market value for most equity securities.3eCFR. 12 CFR 220.12 – Supplement: Margin Requirements You put up at least half the purchase price, and the brokerage lends you the rest.
That 50% requirement creates a 2-to-1 buying power ratio for standard overnight positions. If your account holds $10,000 in equity, your buying power for a regular stock purchase is $20,000. You contribute $10,000, the brokerage lends $10,000, and you end up holding $20,000 worth of stock. The leverage cuts both ways. A 10% drop in a fully leveraged position consumes 20% of your equity.
Fifty percent is a federal floor, not a ceiling. Individual brokerages can require more for securities they consider risky, including low-priced stocks, volatile names, or concentrated positions.4FINRA. FINRA Rules 4210 – Margin Requirements If a brokerage raises the initial requirement on a particular stock to 70% or 100%, your buying power for that security drops even though your account equity has not changed.
Day-Trading Buying Power
Qualifying day traders get a larger multiplier: four times their maintenance margin excess, rather than the standard two-to-one.4FINRA. FINRA Rules 4210 – Margin Requirements An account with $30,000 in equity and no open positions could have roughly $120,000 in day-trading buying power. This enhanced leverage only applies to positions opened and closed within the same trading day. Anything held overnight reverts to the standard 2-to-1 calculation.
To use four-to-one buying power, your account must be classified as a pattern day trader. FINRA defines a pattern day trader as someone who executes four or more day trades within five business days, provided those trades represent more than 6% of total trading activity in the margin account during that period.5FINRA. Day Trading Once flagged, you must maintain at least $25,000 in equity at all times.4FINRA. FINRA Rules 4210 – Margin Requirements Dip below that floor and your brokerage will lock you out of day trading until you restore the balance.
Why Your Buying Power Number Keeps Moving
Three things push the number up and down during the trading day.
The first is maintenance requirements. FINRA Rule 4210 requires a minimum maintenance margin of 25% of the current market value of long equity positions, and most brokerages set their own house minimums higher, often at 30% or more.4FINRA. FINRA Rules 4210 – Margin Requirements As the prices of stocks you already hold move, the equity consumed by those maintenance requirements changes, and what’s left available for new trades changes with it. A sharp drop in one holding can eat thousands of dollars of buying power in minutes, without you placing a single order.
The second is pending orders. Every open order immediately reduces your available buying power by the estimated cost of that trade, even before it fills. Place a limit order to buy $8,000 of stock against $20,000 in buying power, and the platform will show roughly $12,000 remaining. Cancel the order and the reservation lifts instantly. Traders who stack many open limit orders sometimes find their deployable buying power is far below their total buying power because so much of it is tied up in unfilled orders.
The third is settlement timing. Cash from a recent sale may be visible in your balance but unavailable for new purchases until it clears under T+1, depending on your brokerage’s rules for your account type.
What Can Shrink Your Buying Power
Beyond ordinary market movement, a few specific events can reduce the number sharply.
- A cash-account violation. Three good-faith violations in a rolling 12-month period, or a single freeriding violation under Regulation T, generally trigger a 90-day restriction to settled-funds-only trading.2GovInfo. Federal Reserve System 12 CFR 220.8 – Cash Account
- A margin call. If your equity falls below the maintenance requirement, the brokerage can require you to deposit cash or securities, and it can sell your positions to cover the shortfall without contacting you first.7FINRA. FINRA Rules 2264 – Margin Disclosure Statement
- A house margin change. Brokerages can raise the initial or maintenance requirement on specific securities they consider risky, which reduces your buying power for those positions even though your equity is unchanged.6FINRA. FINRA Rules 4210 – Margin Requirements
- A PDT equity drop. A pattern day trader account that falls below $25,000 loses day-trading buying power entirely until the balance is restored.
Read together, these rules explain why the buying power figure on your platform is less a fixed allowance than a live calculation. It reflects what your brokerage will let you commit right now, given your account type, your open positions, your pending orders, the settlement clock, and the specific stocks involved.