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    What is Non Margin Buying Power and How to Use It


    What is Non Margin Buying Power and How to Use It

    Non margin buying power is the amount of cash available in your brokerage account to buy securities without borrowing money from your broker. It is also known as cash buying power or settled cash.

    Non margin buying power is calculated by subtracting the total value of your open orders and unsettled trades from your cash balance. For example, if you have $10,000 in cash and $2,000 in open orders and unsettled trades, your non margin buying power is $8,000.

    Non margin buying power is different from margin buying power, which is the amount of money you can borrow from your broker to buy securities on margin. Margin buying power is based on the value of your marginable securities and the margin requirement of your broker. For example, if you have $10,000 in marginable securities and your broker has a 50% margin requirement, your margin buying power is $10,000 x (1 + 0.5) = $15,000.

    Non margin buying power has some advantages over margin buying power. First, it does not incur any interest charges or fees from your broker. Second, it does not expose you to the risk of a margin call, which is when your broker requires you to deposit more money or sell some securities to maintain your minimum equity level. Third, it allows you to trade certain securities that are not eligible for margin trading, such as penny stocks, options, and mutual funds.

    However, non margin buying power also has some limitations. First, it depends on the settlement date of your trades, which is the date when the transfer of ownership of securities takes place. For most stocks and ETFs, the settlement date is two business days after the trade date (T+2). For options and mutual funds, the settlement date is one business day after the trade date (T+1). This means that you cannot use the proceeds from selling a security to buy another security until the settlement date. Second, it does not allow you to leverage your capital and potentially increase your returns by borrowing money from your broker.

    Therefore, non margin buying power is a useful measure of your liquidity and flexibility in trading securities without using borrowed funds. However, it also requires you to plan ahead and manage your cash flow carefully to avoid running out of cash or missing out on trading opportunities.

    How to Increase Your Non Margin Buying Power

    If you want to increase your non margin buying power, there are a few strategies you can use. One is to deposit more cash into your brokerage account. This will increase your cash balance and your non margin buying power accordingly. Another is to sell some of your securities and wait for the settlement date. This will free up some cash and reduce your open orders and unsettled trades. A third is to use a sweep account, which is a type of account that automatically transfers any excess cash in your brokerage account to a money market fund or a bank account. This will allow you to earn some interest on your idle cash and also access it quickly when you need it.

    How to Use Your Non Margin Buying Power Wisely

    Using your non margin buying power wisely can help you achieve your trading goals and avoid unnecessary risks. Here are some tips to use your non margin buying power effectively:

    • Know your trading style and objectives. If you are a long-term investor who buys and holds securities for years, you may not need a lot of non margin buying power. If you are a short-term trader who buys and sells securities frequently, you may need more non margin buying power to take advantage of market movements.
    • Monitor your cash balance and settlement dates. You should always keep track of how much cash you have in your account and when your trades will settle. This will help you avoid running out of cash or missing out on trading opportunities.
    • Use limit orders and stop orders. Limit orders allow you to specify the maximum price you are willing to pay or the minimum price you are willing to accept for a security. Stop orders allow you to specify a price at which you want to sell or buy a security if the market moves against you. These types of orders can help you control your risk and protect your profits.
    • Diversify your portfolio. Diversification means investing in different types of securities, such as stocks, bonds, commodities, currencies, etc., that have different risk and return characteristics. Diversification can help you reduce your overall risk and increase your potential returns.

    Conclusion

    Non margin buying power is the amount of cash available in your brokerage account to buy securities without borrowing money from your broker. It is calculated by subtracting the total value of your open orders and unsettled trades from your cash balance. Non margin buying power has some advantages and limitations over margin buying power, which is the amount of money you can borrow from your broker to buy securities on margin. Non margin buying power is a useful measure of your liquidity and flexibility in trading securities without using borrowed funds. However, it also requires you to plan ahead and manage your cash flow carefully to avoid running out of cash or missing out on trading opportunities. You can increase your non margin buying power by depositing more cash, selling some securities, or using a sweep account. You can use your non margin buying power wisely by knowing your trading style and objectives, monitoring your cash balance and settlement dates, using limit orders and stop orders, and diversifying your portfolio.

    Hi, I’m Adam Smith

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