Listen to a Business English Dialogue about Adjusted debit balance
Jack: Hi Eliana, have you heard about the term “adjusted debit balance” in finance?
Eliana: Yes, I think it’s the amount of money a customer owes to their brokerage firm after accounting for any margin loans or debit balances in their account.
Jack: That’s correct. It reflects the total amount of borrowed funds or credit extended to the customer by the brokerage.
Eliana: How is the adjusted debit balance different from the cash balance in a brokerage account?
Jack: The cash balance represents the amount of cash available for trading or withdrawal, while the adjusted debit balance includes any borrowed funds or margin loans that need to be repaid.
Eliana: Can you explain how the adjusted debit balance is calculated?
Jack: Sure. It’s calculated by adding the total value of securities purchased on margin to any other outstanding margin debt and subtracting any cash or securities held in the account.
Eliana: What happens if a customer’s adjusted debit balance exceeds their equity in the account?
Jack: If the adjusted debit balance exceeds the equity, the account is said to be in a “debit balance” or “margin call” situation, and the customer may need to deposit additional funds or securities to bring the account back into compliance.
Eliana: Are there any risks associated with having a high adjusted debit balance?
Jack: Yes, having a high adjusted debit balance means the customer has borrowed a significant amount of money, which increases their leverage and potential losses if the market moves against them.
Eliana: Can customers use their adjusted debit balance to make withdrawals?
Jack: Generally, customers can’t withdraw funds equivalent to their adjusted debit balance since that represents money owed to the brokerage firm.
Eliana: It seems like understanding the adjusted debit balance is important for investors who trade on margin to manage their risks and obligations.
Jack: Absolutely, it’s crucial for investors to monitor their adjusted debit balance and understand the implications of trading on margin to avoid potential financial difficulties.