How Is Buying Power Different From Your Account's Cash Balance?
A brokerage account summary often displays two dollar figures side by side that look like they should be interchangeable, and in practice frequently aren’t.
The short answer
Cash balance reflects the actual settled money currently sitting in the account, while buying power reflects the total amount available for trading, which can include margin capacity or unsettled proceeds the cash balance doesn’t count. The two numbers can end up higher, lower, or occasionally equal to each other, depending on the account type and what’s happening with recent trades.
What the cash balance actually shows
Cash balance is the more literal of the two figures — it’s the dollar amount that has fully cleared and belongs to the account outright, similar to a checking account balance. It doesn’t include money from a trade still working through settlement, and it doesn’t reflect any borrowing capacity the account might have. Because it’s the more conservative of the two numbers, it’s also the one that best answers a simple question: how much could actually be withdrawn from the account right now without touching anything still in motion.
What buying power adds on top
Buying power starts from that same settled-cash base but can add to it. In a margin-enabled account, it typically includes borrowing capacity against existing securities. In any account, it may also temporarily include proceeds from a recent sale that hasn’t finished settling, since many brokerages let investors use those proceeds for a new purchase before the underlying trade has fully cleared. Each brokerage decides how much of an unsettled or borrowed amount to fold into the figure, which is why the exact number can vary somewhat between firms even for accounts with similar holdings.
When the two figures diverge
The gap between the numbers tends to run in one of two directions. Buying power runs higher than cash balance most often in margin accounts, or right after a sale whose proceeds haven’t settled yet. It can run lower than the cash balance, by contrast, when part of the cash is being held for a pending transaction, a recent deposit hasn’t cleared enough to be usable, or a margin account’s maintenance requirements are reducing what’s actually free to trade with.
Why the distinction matters at the moment of a trade
Placing a trade based on buying power rather than cash balance works fine as long as the underlying assumptions — that a pending sale will settle as expected, or that margin remains available — hold up. When they don’t, the result can be a cash balance that goes negative even though the buying power figure looked comfortable moments earlier. Glancing at both figures before a trade, rather than just the larger of the two, is a small habit that heads off most of that surprise.
The bottom line
Cash balance answers “what does this account actually own right now,” while buying power answers “what can this account trade with right now.” They’re related but not the same question, and knowing which one a given number is answering avoids most of the confusion that comes with reading a brokerage statement.