Credit Balance

AAA

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.

INVESTOPEDIA EXPLAINS '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. Short-Sale Rule

    A Securities and Exchange Commission (SEC) trading regulation ...
  2. Regulation T - Reg T

    The Federal Reserve Board regulation that governs customer cash ...
  3. Short Sale

    A market transaction in which an investor sells borrowed securities ...
  4. Specialist Short Sale Ratio

    A ratio used to determine the sentiment of specialists on the ...
  5. Short Market Value

    The market value of securities sold short through an individual's ...
  6. Free Credit Balance

    The cash held by a broker in a customer's margin account that ...
RELATED FAQS
  1. Are accounts payable a liability?

    In financial accounting, accounts payable is a current liability that shows the amount a company owes for items or services ... Read Full Answer >>
  2. How can you lose more money than you invest shorting a stock? If you have no money ...

    The simple answer to this question is that there is no limit to the amount of money you can lose in a short sale. This means ... Read Full Answer >>
  3. 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 Full Answer >>
  4. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  5. How do I learn technical skills for trading commodities?

    Many resources are available for those seeking to learn to trade commodities, also known as futures, directly from the major ... Read Full Answer >>
  6. What are the different sources of business risk?

    A certain risk level is inherent in running a business. A company cannot completely eliminate risk, but it can control or ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Should You Close Your Credit Card?

    Find out the consequences before deciding to end your credit agreement.
  2. Active Trading Fundamentals

    Short Selling Tutorial

    Want to profit on declining stocks? This trading strategy does just that.
  3. Options & Futures

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  4. Trading Strategies

    Bucking The Trend With Pattern Failure Strategies

    The best trade could be in the opposite direction when a classic price pattern doesn't behave according to ideal rules.
  5. Brokers

    Private Equity's Returns Are Tempered By Its Risks

    Private equity firms adopt approaches to quickly hike up earnings and boost returns, but these investments come with big risks too.
  6. Credit & Loans

    The Pros & Cons Of Personal Loans vs. Credit Cards

    One is not like the other. We help you decide where to borrow money from.
  7. Mutual Funds & ETFs

    How To Start a Hedge Fund In the United States

    A general overview of how to start a hedge fund firm in the United States, including complying with state and federal regulations.
  8. Trading Strategies

    A Guide Of Option Trading Strategies For Beginners

    Options offer alternative strategies for investors to profit from trading underlying securities, provided the beginner understands the pros and cons.
  9. Mutual Funds & ETFs

    How To Start A Hedge Fund In The UK

    Starting a new hedge fund in the United Kingdom is more complex than in the United States. We discuss UK laws and regulations for starting a new hedge fund.
  10. Active Trading Fundamentals

    Are You Ready To Be A Professional Trader?

    Here's help in making the quantum leap from novice to crackerjack trader.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center