Buying power
The capital a brokerage account has available to open new positions after existing requirements. Options traders track buying-power reduction — how much each trade consumes — as the practical unit of position sizing.
Buying-power reduction is the honest price tag of a trade: a “small” credit received can consume a large slice of the account’s capacity, and returns should be judged against capital consumed, not premium collected.
Keeping substantial buying power free is not idle conservatism. It is the reserve that lets a portfolio absorb marked-to-market losses and requirement expansions without forced selling — the difference between a drawdown and a disaster.
Related terms
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