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Debit Balance

Reviewed by Sujaini | Updated on Sep 30, 2020


What is a Debit Balance?

In a margin account, the debit balance is the total amount of money that the customer owes to a broker or other moneylenders for funds needed to buy securities. Hence, the debit balance is the amount of cash that the customer must have in the account after a security purchase order has been executed so that the transaction can be settled appropriately.

## Understanding Debit Balance

Investors borrow funds from a brokerage while buying on the margin, and then merge those funds with their own to purchase a higher number of shares and eventually gain a more substantial profit. The debit number, which is reported in the investor's account by the brokerage, reflects the expense to the investor of the transaction.

A cash account and a margin account are the two primary forms of investment account used to purchase and sell financial assets. An investor should only spend the cash balance on deposit in a bank account and no more.

A margin account allows a trader or an investor to borrow money from the broker to purchase additional shares or to acquire shares for market sale in the event of a short sale.

In contrast to the credit balance, there can be a debit balance. While a long margin position holds a debit balance, a margin account shows a credit balance with only short positions. The credit balance reflects the sum of the proceeds from a short sale and the margin amount needed.

## Adjusted Debit Balance

A margin account may have positions both long and short. Adjusted debit balance is the amount owed to the brokerage company in a margin account, minus short-sales profits and surpluses in a particular miscellaneous account (SMA).

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