Credit Balance


DEFINITION of 'Credit Balance'

In a margin account, the amount of funds deposited in the customer's account following the successful execution of a short sale order. The credit balance amount includes both the proceeds of the short sale itself and the specified margin amount the customer is required to deposit under Regulation T.

BREAKING DOWN 'Credit Balance'

In the case of a short sale, an investor essentially borrows equity shares from his or her brokerage and then sells the shares on the open market, hoping to buy them back off the open market for a lower price at a later date and then return them to the brokerage, pocketing the excess cash left over.

When the shares are first short sold, the investor receives the cash amount of the sale in his or her margin account. This amount, plus the specified margin amount which must be deposited by the investor under Reg T, comprises the credit balance. It must be maintained in the investor's margin account as a form of assurance that the shares can be repurchased from the market and returned to the brokerage house.

  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  2. Debit Balance

    In a margin account, money owed by the customer to the broker ...
  3. Margin Account

    A brokerage account in which the broker lends the customer cash ...
  4. Regulation T - Reg T

    The Federal Reserve Board regulation that governs customer cash ...
  5. Specialist Short Sale Ratio

    A ratio used to determine the sentiment of specialists on the ...
  6. Short Sale

    A market transaction in which an investor sells borrowed securities ...
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