Credit Balance

What is a 'Credit Balance'

A credit balance, in a margin account, is 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.

RELATED TERMS
  1. Minimum Margin

    The initial amount required to be deposited in a margin account ...
  2. Excess Margin Deposit

    Funds deposited in a trading account beyond what is required ...
  3. Regulation T - Reg T

    The Federal Reserve Board regulation that governs customer cash ...
  4. Maintenance Margin

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

    In a margin account, money owed by the customer to the broker ...
  6. Buying On Margin

    The purchase of an asset by paying the margin and borrowing the ...
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. 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 ...
  3. 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.
  4. Trading Strategies

    Margin Investing Gets A Bad Rap, But For The Thrill-Seeker, It's Worth It

    Investing on margin can be profitable but it's a risky play that needs care.
  5. Professionals

    How To Calculate Margin On The Series 3 Exam

    Learn what you need to know about margin to pass your Series 3 exam.
  6. Options & Futures

    Spreading The Word About Portfolio Margin

    An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
  7. Trading Strategies

    Simulator How-To Guide: Margin Accounts

    Although we've used virtual cash so far in our How-To Guide, we've dealt with investing from the perspective of an investor trading stock with his/her own money. However, there's ...
  8. Savings

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  9. Active Trading Fundamentals

    Short Selling: Why Short?

    Generally, the two main reasons to short are to either speculate or to hedge. When you speculate, you are watching for fluctuations in the market in order to quickly make a big profit off of ...
  10. Credit & Loans

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What are the different types of margin calls?

    Learn the differences between margin calls and fed margin calls while reviewing the definitions of each and how to satisfy ... Read Answer >>
  4. What happens if I cannot pay a margin call?

    Minimum margin is the amount of funds that must be deposited with a broker by a margin account customer. With a margin account, ... Read Answer >>
  5. How exactly does buying on margin work and why is it controversial?

    Learn how purchasing stock on margin works, and understand the risk associated with margin accounts that make the strategy ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center