Adjusted Debit Balance

  

This one's about margin accounts, i.e. how much in the red for margin are you after adjusting for...stuff.

Your max borrow under Reg T is 50 percent, so if you have 100k in your brokerage account, which has been set up as a margin account, you can borrow up to 50k, but that's after adjustments.

So like...what adjustments? Well, things like interest charges and sometimes liquidity discounts, i.e. in thinly traded shares, if you wanted to just get out, you can't without dropping the price a ton.

So more adjustments often then come in from the broker imposing their own set of 'safety rails' on top of the Reg T margin structure.

Related or Semi-related Video

Finance: What is a registration statemen...2 Views

00:00

finance a la shmoop what is a registration statement....Hi I'm a

00:08

registration statement okay there I said [Uncle Sam poster talking]

00:10

it that's a registration statement alright

00:12

what am I good for well if you want to go public that is raise money from Joe [Joe Sixpack and Josephine Sixpack appear]

00:17

Sixpack and his wife Josephine well then you have to jump through all kinds of

00:21

hoops the most important of which is that you have to file a prospectus with

00:25

the Securities Exchange Commission or SEC all right what's a prospectus[Prospectus with SEC badge]

00:30

it used to be an amateur spectus but the well then it took some continuing ed

00:34

classes owned expecting skills and it turned pro and took money all

00:38

right well a prospectus basically just outlines all of the information that the

00:42

SEC deems is key to the offering like trailing revenues and profits and growth

00:48

the units sold, any lawsuits outstanding against the company, distribution,

00:53

contracts with vendors patents who the management is debts owed and on and on [examples of what is outlined in a prospectus]

00:59

why the need for all this registration well because so many unsuspecting

01:04

investors who likely didn't watch this video well they got taken taken in the [Person picks up red phone]

01:09

past yeah farmers, not educated government came to their aid they

01:12

invested in some sleazy thing that wasn't run through the SEC and now

01:16

they're walking around in a barrel saying we'll uh shmoop for food yeah [Man walking in a barrel]

01:21

good luck you know the phrase a barrel of fun yeah this is not what it's

01:24

referring to [Man walking inside a barrel and a tiger appears]

Up Next

Finance: What does it mean to rebalance a portfolio?
1 Views

What does it mean to rebalance an account, and will we need a yoga mat? Hit play to find out.

Finance: What is Reg T?
3 Views

Reg T, or Regulation T, is a federal regulation that covers the form and manner in which brokers, or brokerages, can extend credit to customers.

Finance: What does a stock broker do?
19 Views

What does a stockbroker do? Stockbrokers use money from investors to invest in the stock market. Their first job is to go out and find these client...

Finance: What is a red herring? (Plus Brochure Rule, Sales Literature and the Preliminary Prospectus)
35 Views

What is a red herring? A red herring, so named because the cover page is printed in red ink, is a preliminary prospectus for an IPO. In a majority...

Find other enlightening terms in Shmoop Finance Genius Bar(f)