Understanding Balance vs. Purchasing Power: What’s the difference?
Balance and Purchasing Power may look similar, but they are not the same. Understanding the difference can help explain why opening a position changes one value immediately, while the other may not adjust in the same way.
What Balance means
Balance is the total value currently reflected in your account. This includes the funds in the account along with any realized trading activity that has been applied.
What Purchasing Power means
Purchasing Power is the amount of capital available in your account to open new positions. It is based on your current balance, margin requirements, working orders, and open positions.
Purchasing Power is the figure used to determine whether your account can support entering an additional trade.
Opening a Position
When you open a position, a portion of your available capital is used to support that trade.
As a result:
- Purchasing Power decreases
But
- The Balance may not necessarily change.
This is because Purchasing Power is based on the capital currently available to open new positions after accounting for margin requirements and open exposure.
Why might Purchasing Power look higher than Balance?
In some cases, your Purchasing Power may appear higher than your Balance.
Purchasing Power is an estimate, and users should account for pending commissions to avoid unintended liquidation.
This can happen because certain fees and commissions may not be reflected in Purchasing Power immediately during the trading session.
As a result, the two values may not always match exactly throughout the day.
Note: Purchasing Power is an estimate and users should account for pending commissions to avoid unintended liquidation.
Why this matters
If you are checking whether you can place a new trade, Purchasing Power is the more relevant figure to review. If you are reviewing the overall value reflected in the account, Balance is the better reference point.
Key items to remember:
- Balance shows the value reflected in the account
- Purchasing Power shows how much capital is currently available to open new positions
- Opening a trade typically reduces Purchasing Power
- Balance and Purchasing Power may not always match exactly during the trading day