In stocks, buying power is the total dollar amount you can spend on securities in your brokerage account right now. In a cash account, that number equals your settled cash, dollar for dollar. In a margin account, it can be two or even four times your cash because the broker lends you the rest. Which account you hold, which securities you trade, and which regulations apply all change how much firepower you actually have.
Buying Power in a Cash Account
A cash account is the simplest setup. Your buying power equals your settled cash. If you have $2,000 settled, you can buy $2,000 of stock and nothing more. No borrowing, no leverage, no interest.
Settled funds include deposited cash and proceeds from earlier sales that have finished settling. Settlement currently follows a T+1 standard, meaning a trade settles one business day after the transaction date. The SEC adopted this shortened cycle effective May 28, 2024, replacing the older T+2 timeline.1U.S. Securities and Exchange Commission. SEC Chair Gensler Statement on Upcoming Implementation of T+1 Settlement Cycle Sell a stock Monday, and the proceeds settle Tuesday. Until settlement completes, that money doesn’t count toward your usable buying power.
Trading With Unsettled Cash Can Freeze the Account
Cash accounts don’t allow borrowing, so using unsettled funds to trade can trigger violations that restrict the account. A good faith violation happens when you buy a security with unsettled cash and then sell it before the original purchase settles. A freeriding violation is more specific: you buy shares and pay for them with the proceeds from selling those same shares, never actually putting up your own money.2Fidelity. Avoiding Cash Account Trading Violations A cash liquidation violation occurs when you buy one security without enough settled cash and then sell a different security to cover the shortfall.
Three good faith or cash liquidation violations within a rolling 12-month period trigger a 90-day restriction, during which every purchase must be covered by fully settled funds before the order is placed. A single freeriding violation triggers the same 90-day restriction on its own.2Fidelity. Avoiding Cash Account Trading Violations The simplest prevention: don’t place a buy order until your funds show as settled.
Buying Power in a Margin Account
A margin account lets you borrow from your broker to buy securities, which pushes your buying power beyond your cash balance. For positions held overnight, the standard ratio is two-to-one. Deposit $5,000 in cash and you’ll typically see $10,000 in buying power. The broker lends the other half, and you pay interest for as long as the position is open.
Before you can trade on margin, FINRA Rule 4210 requires a minimum equity deposit of $2,000, though you don’t need to deposit more than the full cost of what you’re buying.3FINRA.org. FINRA Rule 4210 – Margin Requirements Once the account is open, buying power fluctuates throughout the day as your holdings gain or lose value, because those holdings serve as collateral for the loan.
The 50% Initial Margin Rule
The Federal Reserve Board sets the ceiling on how much a broker can lend you at the moment you open a new position. Under Regulation T (12 CFR Part 220), the initial margin requirement for most equity securities is 50% of the purchase price.4eCFR. 12 CFR 220.12 – Supplement: Margin Requirements To buy $10,000 of stock on margin, you need at least $5,000 of your own equity. The broker funds the remaining $5,000.
This is a federal floor, not a ceiling. Brokerages can demand more than 50% for volatile or thinly traded securities, but they can never require less. The check happens before your order executes, so if your equity falls short, the trade won’t go through.
Maintenance Margin After You’re In
Once you own a margin position, a lower ongoing threshold applies. FINRA Rule 4210 sets maintenance margin at a minimum of 25% of the current market value of long positions.3FINRA.org. FINRA Rule 4210 – Margin Requirements In practice most brokerages set their internal “house” requirements higher. A 30% minimum is common, and volatile stocks can carry requirements of 40% or more.5Charles Schwab. Understanding Risk-Based Concentration and Margin Brokerages can raise these thresholds at any time without advance written notice.
When equity drops below the maintenance threshold, the broker issues a margin call demanding more cash or forcing you to sell. Brokers are not legally required to notify you before liquidating positions, and they can sell more than the minimum needed to cover the shortfall.6FINRA.org. Know What Triggers a Margin Call Most issue warnings as a courtesy, but you shouldn’t count on getting one.
Pattern Day Trader Buying Power
Day traders who execute four or more day trades within five business days get classified as pattern day traders under FINRA rules. Once flagged, the account must maintain at least $25,000 in equity at all times. In exchange, the intraday buying power ratio jumps to four-to-one, so $25,000 in equity supports up to $100,000 in day-trading positions.7FINRA.org. Day Trading That leverage disappears for anything held overnight, which reverts to the standard two-to-one ratio.
If your equity falls below $25,000, you cannot place new day trades until the balance is restored. Exceed the day-trading buying power and you have five business days to deposit funds; miss that deadline and the account is restricted to cash-only trading for 90 days.8Federal Register. Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 4210
What Quietly Reduces Your Buying Power
Several things can shrink available buying power even when your total account balance looks healthy.
- Open limit orders reserve funds immediately. A $6,000 pending order against $10,000 of buying power leaves you with $4,000 usable until the order fills or you cancel it.
- Non-marginable securities require 100% cash under Regulation T and contribute nothing to your margin leverage. This category includes stocks trading below $5 per share, recent IPOs (typically non-marginable for 30 days after listing), and most over-the-counter securities.4eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
- Short sales eat buying power harder than most traders expect. Regulation T requires a deposit equal to 150% of the position value when you sell short: the 100% in sale proceeds that the broker holds as collateral, plus 50% from your own equity. Shorting $20,000 of stock ties up $30,000. If the stock rises, the collateral requirement grows with it.4eCFR. 12 CFR 220.12 – Supplement: Margin Requirements
- Uncovered option positions tie up substantial buying power because the risk is theoretically unlimited. Buying options costs the premium upfront and doesn’t consume additional margin.
- Concentration in a single security relative to its trading volume can trigger elevated margin requirements, which directly reduce buying power for other trades.
These factors stack. An account with $50,000 in equity could have far less usable buying power once non-marginable holdings, open limit orders, and uncovered options are factored in.
The Cost of Using Margin
Borrowed money is not free. Margin interest accumulates daily and is charged monthly. As of early 2026, rates vary widely by broker. Interactive Brokers charges roughly 4.1% to 5.1% on USD margin balances, while Fidelity and Schwab charge between about 10% and 11.3% on smaller balances, dropping to around 7.5% for loans above $1.5 million.9Interactive Brokers. US Margin Loan Rates Comparison For anyone using margin regularly, the gap between brokers is worth checking.
Margin interest qualifies as investment interest expense, deductible against your net investment income on your federal return. The deduction is limited to the amount of your net investment income for the year; any excess carries forward.10Office of the Law Revision Counsel. 26 USC 163 – Interest You claim it on IRS Form 4952. If you earned $3,000 in dividends and interest but paid $5,000 in margin interest, you can deduct $3,000 this year and carry the remaining $2,000 forward. You have to itemize to take the deduction, so it won’t help if you take the standard deduction.
Portfolio Margin for Advanced Traders
Experienced traders with large accounts may qualify for portfolio margin, which calculates buying power based on the overall risk profile of the account rather than applying flat percentages to every position. Instead of the rigid 50% initial requirement under Regulation T, portfolio margin uses theoretical pricing models to estimate the worst-case loss across all positions and sets margin at that level.11Charles Schwab. Portfolio Margin vs Regulation T Margin Well-hedged portfolios get substantially more buying power under this method; concentrated, unhedged portfolios see little benefit.
Eligibility is restrictive. FINRA Rule 4210(g) requires approval for uncovered options trading, and accounts that include unlisted derivatives must maintain at least $5 million in equity.3FINRA.org. FINRA Rule 4210 – Margin Requirements Most brokerages set their own minimums for portfolio margin eligibility, commonly in the $100,000 to $150,000 range for accounts trading listed options and equities only. It is a tool for traders who understand position-level risk modeling, and not something most investors need to worry about.