Adjusted Debit Balance

DEFINITION of 'Adjusted Debit Balance'

The amount in a margin account that is owed to the broker, minus profits on short sales and balances in a special miscellaneous account (SMA). The adjusted debit balance aids an investor in knowing how much he/she owes in the event of a margin call. Under Regulation T, one can borrow up to 50% of the purchase price of securities on margin.

BREAKING DOWN 'Adjusted Debit Balance'

Regulation T guidelines changed in 1982, making it less significant than in years past. However, the formula is still useful in determining the amount of money or securities that one can withdraw from a margin account. For example, things like "freeriding," a practice whereby a stock is bought and sold before it has been paid for, is not permitted. If/when freeriding occurs, the broker is obligated to freeze the investor's ability to buy on margin for 90 days.

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  4. Why does the Federal Reserve Board regulate which stocks can be bought on margin?

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  5. Why do you need a margin account to short sell stocks?

    The reason that margin accounts and only margin accounts can be used to short sell stocks has to do with Regulation T, a ... Read Answer >>
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