Stock market basics
Buying power
Definition
What you can buy with your cash plus what the broker will lend. With 50% initial margin, $10,000 of equity gives up to $20,000 of stock buying power.
Example
Say you have $8,000 of equity in a margin account with 50% initial margin, which gives you $16,000 of buying power. If you use all of it to buy 400 shares at $40, a drop to $36 cuts the position by $1,600, or 20% of your own money, even though the stock fell only 10%. You also pay interest on the $8,000 borrowed.
Hypothetical numbers, for illustration only.
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