Free Credit Balance

AAA

DEFINITION of 'Free Credit Balance'

The cash held by a broker in a customer's margin account that can be withdrawn by the customer at any time without restriction. This balance is calculated as the total remaining money in a margin account after margin requirements, short sale proceeds and special miscellaneous accounts are taken into consideration.

INVESTOPEDIA EXPLAINS 'Free Credit Balance'

In a cash account, the credit balance is the amount of money that remains after all purchases, and it is free from withdrawal restrictions. However, within a margin account, the credit balance of the account includes not only the cash remaining in the account, but also proceeds from short sales along with money used to meet margin requirements, and excess margin and buying power. Because the credit balance of a margin account includes both unrestricted amounts and restricted amounts, the free credit balance is created to determine the total amount that can be withdrawn by the account holder.

RELATED TERMS
  1. Debit Balance

    In a margin account, money owed by the customer to the broker ...
  2. Cash Account

    A regular brokerage account in which the customer is required ...
  3. Initial Margin

    The percentage of the purchase price of securities (that can ...
  4. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  5. Margin Account

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

    The Federal Reserve Board regulation that governs customer cash ...
Related Articles
  1. Trading Strategies

    What is a margin account?

    A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor might put down 50% of the value of a purchase and borrow the rest from ...
  2. Active Trading Fundamentals

    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 rule instituted by the Federal Reserve Board. This rule is motivated by ...
  3. Active Trading Fundamentals

    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 decrease and he or she will be able to buy them back at a lower price. ...
  4. Options & Futures

    Margin Trading

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

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  6. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  7. Investing on margin can be profitable but it's a risky play that needs care.
    Trading Strategies

    Margin Investing: Big Risk, Big Reward

    Investing on margin can be profitable but it's a risky play that needs care.
  8. Mutual Funds & ETFs

    How do hedge funds determine what assets to own?

    Learn about the various types of investments that hedge fund managers use, and explore basic hedge fund management trading strategies.
  9. Fundamental Analysis

    Which leverage ratios are most useful for analyzing manufacturing companies?

    See which leverage ratios investors and creditors are likely to use when analyzing the debt burdens for manufacturing companies.
  10. Fundamental Analysis

    How do I unlever beta?

    Learn how to calculate the unlevered beta of a company and understand the differences between standard beta versus unlevered beta when evaluating risk.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center