What is Buying Power
2022-05-02 | Danielle Shay
Though we are in modern times, we are experiencing more of the same type of events in our history and their effects on buying power. Overseas conflicts and a worldwide pandemic are factors contributing to our current economy. Data provided by the U.S. Labor Department published on March 10 of this year says that as of February 2022, The United States annual inflation rate is 7.9%. In addition to previously rising 7.5% – the greatest it has been since January 1982.
American purchasing power is undoubtedly affected by an inflation rate that has not risen at this speed in the past 40 years. There are several contributing factors to this inflation rate: the COVID-19 pandemic. Past instances of severe inflation are often costly and ravaging wars that collapse economies. Most recently, in the Russia-Ukraine conflict. But we have also seen this occur in Germany after World War I.
It is more important than ever that we educate ourselves and understand our buying power in a time of uncertainty. When deciding where to invest, we must understand what brokerage will make the most of our buying power. Choosing the right place to invest in our financial future is vital, especially with newer options to add to our portfolio like cryptocurrency and keeping up to date on how investing evolves with our ever-changing world.
What is Buying Power?
Buying power is the money available to an investor to purchase securities in trading plus the available margin. To put it simply, it’s the money that’s sitting in your account, ready to be used to buy stocks, options, and bonds. However, it’s also how much you can borrow against your account, which is directly related to how much money you have. According to the Federal Reserve, firms can lend traders up to 50% of their buying power to buy securities.
Another possibility that should be mentioned are margin calls. A margin call is when the trader’s finances go below the required amount to sustain the account. The broker will require the trader to replenish their account or sell some of their securities to make up the difference.
What is Purchasing power?
Purchasing power is related to consumer spending and the number of goods or services a person can buy with their money. When purchasing power and inflation have combined into the reality of the economy, it forms a vicious cycle that affects everyone in the economy. For example, inflation affects the value of the dollar. When the dollar loses value, the consumer can’t buy as many goods and services as before, negatively affecting companies, consumers, and the economy.
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What Does Buying Power Mean on Robinhood?
However, buying power on this platform varies when integrating cryptocurrency into your portfolio. You can increase your buying power by borrowing money to buy stocks, otherwise known as margin investing. Typically, a standard margin account will give twice the equity in buying power. By borrowing to buy, traders have more currency available to purchase stocks. Their buying power now includes the cash borrowed on margin and their funds.
It is important to remember that money borrowed on margin must be paid back and most likely will include interest. Traders are willing to take on this risk because they count on the rising stock price to make their profit and give back the cash they had borrowed. If the stock decreases in value, traders are still responsible for the margin owed. That’s why it’s riskier than just trading with your cash. Margin trading will shine a bright light on what the trader has lost, not only the profit they have gained.
Buying power on this platform works similarly. Here, buying power depends on what the user is investing in and their type of account. The user can view their purchase power on Robinhood’s clear-cut app, and that information comes from the available funds. Robinhood does offer its clients margin accounts, so users may borrow to buy stocks. Robinhood Gold funds those accounts. The caveat is that investors must put up a minimum of $2,000 of their own money. Also, there is a monthly recurring fee of $5. This amount is in addition to the interest the user will have to pay on the margin. Robinhood determines the interest by the amount of money borrowed. However, margin accounts exclude crypto buying power. To buy any cryptocurrency, it has to be purchased with the client’s own money.
Instant Buying Power and Bank Transfers
The time it takes for the money to hit the account will also affect a user’s buying power on Robinhood. There is a delay in updating the client’s buying power that was not always present on the platform. In the past, funds were available right away when a user added cash to purchase cryptocurrencies. It could take about three to five business days for money that a user deposits to settle into the account.
When transferring buying power from Robinhood to a bank, it depends on where the money was generated. For that reason, specific conditions have to be met before moving money from your account. Also, the amount of withdrawals you can make is limited to five a day and $50,000 for each business day.
Though cryptocurrency trading requires a separate account, you can still see all of your buying power in one place in Robinhood’s app or on its desktop interface. Before investing on any platform, it is essential to understand your buying power, risks, and rewards with trading. Before placing an order, be confident you can afford the chance of a loss and have enough put toward stocks, options, or cryptocurrencies.
Webull Crypto Buying Power
Webull’s low, competitive fees compared to other brokerages and high tech make the firm attractive to investors. However, Webull may not be the optimal choice for those people with less experience in trading. Its intuitive interface will be attractive to investors because it offers various instruments for traders. But a beginner will find it hard to navigate without education on how to make the most of the platform. And some standard asset classes are not offered.
Like Robinhood, Webull attracts new and relaxed investors looking for an easy-to-understand platform and a desktop user interface. One advantage Webull has over Robinhood is Webull’s instant buying power. Unlike Robinhood, buying power is available to a Webull user at the time of the deposit. The trader does not have to wait for the deposit to settle. The higher the user’s account value, the more instant buying power they will have available to trade. But, keep in mind that Webull’s instant buying power does not apply to trading options.
The platform has a streamlined and user-friendly look, and the appeal of its tech includes:
- Advanced orders
- In-depth charting
- Level II market data from Nasdaq
- Multiple technical indicators
Day Trading Buying Power
Webull changed crypto investing when it granted users the opportunity to buy and sell cryptocurrency together with stocks, ETFs, and mutual funds. Webull permits its users to trade based on their buying power. Overnight and day trades are their two kinds of buying power for margin accounts. The first is the amount of capital accessible to purchase securities and keep them overnight. The second is day-trade buying power, which is the money on hand to place trades. At the start of the day, day-trading buying power is established. It does not grow on stocks held overnight or deposits made on the same day. A pattern day trading account will usually result in four times equity in buying power.
So while Webull will interest new traders, the company is most likely best for intermediate investors and crypto traders due to its lack of educational support for those new to the game. Yet the areas the company truly shines in are its intuitive interface, advanced trading tools, access to cryptocurrency, and comparatively low costs.
Where to Make the Most of Your Buying Power?
There are many similarities, pros, and cons to the companies discussed. So it may be difficult for investors to decide which platform is right and what brokerage will make the most of their buying power. To make the best decision, the investor must examine where they are in their investment journey. For those just getting their feet wet, Robinhood may be the right brokerage. It would be a contender for mobile users as its interface is simple, intentionally so, and provides basic needs for its investors who want to leverage their buying power with margin accounts.
Webull’s platform is also intuitive, though it offers more than basic features. Its advanced tech on the mobile app provides advanced tools. These features include charts, indicators, price alerts, and voice commands targeted to intermediate and advanced users.
Whatever your level, understanding your buying power will help with your investments and secure your financial future. Take care to find out as much information as possible before investing with any brokerage company. If you fully comprehend your buying power, how the economy impacts it, and all of the highs and lows of investing, you can be confident in your choices.
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FAQs on Buying Power
Q: What is buying power?
A: Buying power explicitly describes the currency accessible for investors to buy securities. It equates to all the money held in the account and the available margin.
Q: What is purchasing power?
A: Purchasing power is how much a consumer’s dollar can buy. Inflation causes the dollar to lose value, leading to consumers paying more for fewer goods and services.
Q: Why is my buying power so low?
A: Several factors can contribute to low buying power. You may be limited due to insufficient equity to get to your margin minimum. A fall below your minimum balance would prevent you from placing an order.
Q: How does CPI affect purchasing power?
A: CPI, the Consumer Price Index, is an average, over time, of the change in the prices paid by consumers. The purchasing power of the consumer’s dollar calculates the difference in the value to the consumer of consumption that a dollar buys during different times.
Q: What determines the purchasing power of a consumer?
A: The CPI defines the consumer’s purchasing power, which analyses fluctuations in the cost of goods and services over months or even years.