DEFINITION of 'Borrowing Power Of Securities'

The value associated with being able to invest in securities on margin, and being able to use securities as collateral in other transactions, such as taking on a loan. The borrowing power of securities is listed on an investor’s monthly brokerage statement, with margin limits varying but typically not greater than half of the value of the security.

BREAKING DOWN 'Borrowing Power Of Securities'

A share of stock represents a share in a company, and is an asset that a shareholder can buy or sell whenever he or she sees fit. While not the same as a physical good, such as a commodity, or real estate, the asset is liquid and can be used as collateral like any other asset. Using securities as collateral is more complicated than using a physical asset, as the price of a security can fluctuate rapidly depending on market conditions. The value of the loan is dependent on the type of security, such as a stock or bond, and the policy of the lender regarding collateral.

Just as a homeowner can purchase a home using a loan, investors can purchase securities using borrowed money. Paying for securities purchased on margin depends on whether the investor is authorized to have a margin account, with the amount of margin being dependent on the investor’s ability to pay back what is borrowed. Unlike using a mortgage to purchase a house, the amount of time that an investor has to pay back what is borrowed is much briefer. The total amount that can be borrowed also tends to be lower, with the value of margin typically not exceeding 50% of the value of the amount of securities that the investor has in his or her account. The percentage of margin to the total value of securities is shown on the brokerage account statement that the investor periodically receives.

  1. Secured Note

    A secured note is a type of loan that is backed by the borrower's ...
  2. Margin Loan Availability

    Margin loan availability describes the amount in a margin account ...
  3. Additional Collateral

    Additional assets put up as collateral by a borrower against ...
  4. Security Interest

    Security interest is a legal claim on collateral that has been ...
  5. Loan Stock

    Loan stock refers to common or preferred stock shares that are ...
  6. Initial Margin

    The percentage of the purchase price of securities (that can ...
Related Articles
  1. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  2. Personal Finance

    The Best Way to Borrow

    There are many ways to secure funding. Find out the pros and cons of each way to borrow.
  3. Small Business

    Using Collateral to Obtain a Loan for Your Small Business

    Learn what assets can be used as collateral for an asset-based loan, and find out best practices when seeking asset-based lending.
  4. Retirement

    10 Ways to Borrow in Retirement

    Before you take money from your nest egg, consider these 10 other ways to borrow in retirement.
  5. Insights

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  6. Investing

    Stock Market's New Threat Is Record Margin Debt

    Margin debt is a rapidly expanding threat that could turn a modest market drop into a drastic plunge.
  7. Personal Finance

    8 Cheaper Ways to Raise Cash Than Car Title Loans

    Before you sign up for a car title loan, investigate these eight alternate cash-raising strategies rather than using the value of your lien-free vehicle.
  1. What is a margin account?

    A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities. Read Answer >>
  2. When looking at my online broker account, I see an account value, cash value and ...

    When looking at some online brokerage accounts, there are a few figures that may be confusing, including account value, cash ... Read Answer >>
  3. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center