Buying Power
The more buying power, the better (if you're the buyer), as this is the amount of actual cash an investor has to invest in the stock market.
An investor can also take out a loan based on the amount of cash in their brokerage account, called a margin account. This is not a dollar for dollar loan, as depending on the brokerage house and the track record of the investor, he can usually borrow at least twice the amount of cash on hand in order to buy put or call options, for example. High rollers can get even more. But obviously, the more you borrow, the more you need to pay back...and if you make a bad investment decision, you could find yourself in a hole. Hopefully not one six feet underground.
A non-margin account only lets you use the amount of cash you have in your account. That is, your buying power is just...the assets you have.
Example: You have $200,000 in your Schwab account. You have a 50 percent margin limit in there, so you can buy up to $300,000 worth of securities. And if they go down, say, $20,000, then you have to sell $10,000 worth of securities to meet your max 50 percent margin limit. Were this a non-marginable account, you'd only have $200,000 worth of buying power.
Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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Purchasing power is a measure of the value of a particular currency at a given time and in a given place.