Buying Power Calculator

Understanding Investment and Purchasing Buying Power

Buying power represents the total dollar amount of securities, assets, or property an investor or purchaser can buy using available cash reserves combined with margin credit or loan leverage.

Buying Power Formulas

The total purchasing capacity depends on available equity and the initial margin requirement:

1. Total Buying Power:

$$\text{Buying Power} = \frac{\text{Available Cash}}{\text{Initial Margin Rate (\%)}} \times 100$$

2. Maximum Borrowed Amount:

$$\text{Max Borrowed Amount} = \text{Total Buying Power} - \text{Available Cash}$$

3. Leverage Ratio:

$$\text{Leverage Ratio} = \frac{\text{Total Buying Power}}{\text{Available Cash}}$$

Margin Requirements and Risk Management

Under Federal Reserve Regulation T (Reg T), standard stock brokerage margin accounts allow investors up to 50% initial margin requirement, providing 2:1 purchasing leverage. However, holding leveraged positions overnight carries interest charges and maintenance margin call risks if asset prices drop.