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.

RELATED TERMS
  1. Buying On Margin

    The purchase of an asset by paying the margin and borrowing the ...
  2. Debit Balance

    In a margin account, money owed by the customer to the broker ...
  3. Free Credit Balance

    The cash held by a broker in a customer's margin account that ...
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  5. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  6. Federal Call

    A special type of margin call requiring a trader to deposit sufficient ...
Related Articles
  1. Investing Basics

    Understanding Regulation T

    Regulation T governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers to buy securities.
  2. Professionals

    Cash and Margin Accounts

    FINRA/NASAA Series 66 Section 2 - Cash and Margin Accounts. This section discusses cash account, margin accounts and regulation T in detail.
  3. Professionals

    Cash and Margin Accounts

    FINRA Series 6: Section 12 Cash and Margin Accounts. This section is regarding Cash Account, Margin Account, Regulation T and required documentation such as credit, hypothecation and loan consent ...
  4. Options & Futures

    Margin Trading: Conclusion

    Here's the bottom line on margin trading: You are more likely to lose lots of money (or make lots of money) when you invest on margin. Now let's recap other key points in this tutorial: ...
  5. Options & Futures

    Margin Trading: What Is Buying On Margin?

    The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able ...
  6. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  7. Professionals

    C. Regulations

    Regulation of Credit One of the main reasons the stock market crashed in 1929 was the aggressive lending of money to investors who wanted to purchase securities on margin. In an effort to ward ...
  8. Active Trading Fundamentals

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  9. Markets

    Intermediate Guide To E-Mini Futures Contracts - Margin

    Margin is essentially a loan that a brokerage firm extends to a client (the trader or investor) that is used for the purchase of trading instruments. Margin trading allows traders and investors ...
  10. Professionals

    Managing Margin Accounts

    Managing Margin Accounts
RELATED FAQS
  1. How are margin calls regulated by the SEC?

    Learn how FINRA and the Federal Reserve Board regulate trading in margin accounts, and see how brokers can liquidate positions ... Read Answer >>
  2. How does a broker decide which customers are eligible to open a margin account?

    Learn how brokers have the sole discretion to determine which customers can open margin accounts, and understand the rules ... Read Answer >>
  3. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    Learn how FINRA and the Federal Reserve regulate margin account trading, and understand how pattern day trading can impact ... Read Answer >>
  4. How much can I borrow with a margin account?

    Understand the basics of margin accounts and buying on margin, including what amount investors can typically borrow for purchases ... Read Answer >>
  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 >>
  6. Why does the Federal Reserve Board regulate which stocks can be bought on margin?

    Find out why the Federal Reserve Board began regulating margin stock purchases in 1934 and why margin requirements do not ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center