If you put all your money into one "risky" or volatile stock, a broker might reduce your leverage, effectively lowering your buying power to protect themselves from a total wipeout. The Bottom Line
While it sounds simple, how it’s calculated depends entirely on what kind of account you’re using. 1. Cash Account Buying Power
If the stocks you already own drop in value, your equity decreases. Because your borrowing limit is tied to your equity, your buying power drops too.
This is where things get more powerful—and more dangerous. A margin account allows you to borrow money from your broker to buy more stock than you could with your own cash.
If you put all your money into one "risky" or volatile stock, a broker might reduce your leverage, effectively lowering your buying power to protect themselves from a total wipeout. The Bottom Line
While it sounds simple, how it’s calculated depends entirely on what kind of account you’re using. 1. Cash Account Buying Power
If the stocks you already own drop in value, your equity decreases. Because your borrowing limit is tied to your equity, your buying power drops too.
This is where things get more powerful—and more dangerous. A margin account allows you to borrow money from your broker to buy more stock than you could with your own cash.