Fictitious Credit

DEFINITION of 'Fictitious Credit'

An outstanding balance in a margin account that cannot be withdrawn because it is being used as collateral. Fictitious credit is the result of proceeds from the short sale of securities, and is the opposite of a margin account's free credit balance.

BREAKING DOWN 'Fictitious Credit'

For example, suppose that a short sale of 100 shares of Big Corp. stock is completed at $10 per share, yielding a cash balance of $1,000 in the trading account. The $1,000 is considered fictitious credit and is held as collateral for the 100 shares of Big stock borrowed for the short sale.

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RELATED FAQS
  1. What are the minimum margin requirements for a short sale account?

    In a short sale transaction, the investor borrows shares and sells them on the market in the hope that the share price will ... Read Answer >>
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    Learn how purchasing stock on margin works, and understand the risk associated with margin accounts that make the strategy ... Read Answer >>
  3. Why do you need a margin account to short sell stocks?

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