Webull offers new users a fantastic array of options, from margin trading to paper trading options. Not only do they charge very little fees but Webull provides some of the best charting tools on the market. Sometimes, however, the cash balance in my account turned negative and I wondered why. Here’s what I found out:
Your cash balance on Webull turns negative when you trade on a temporary credit line. This occurs when your purchasing power is greater than the cash balance in your account. The negative balance is the amount that will be deducted from the account once it’s balanced.
Since this is quite a confusing subject matter I will go a bit more into detail as to why the cash balance can be negative on Webull, why your buying power may be higher than your cash balance when buying can be negative, and why you may have a cash balance but no buying power. We’ll also look at how to resolve each of these issues!
Why is my cash balance negative?
In general, a negative cash balance comes into being when an order is placed without sufficient liquidity in your account. In other words, you don’t have the cash available to actually place the order but through some other mechanism, e.g. margin trading, you were granted buying power.
Let’s look at some of the main causes of a negative cash balance on Webull:
- ACH Deposit: When making an ACH deposit to Webull your funds will take a few days to settle in your account. However, Webull will typically credit a part of that deposit instantly. When you place a losing trade using the instant deposit balance your cash balance can turn negative.
- Margin Trading: Trading on margin means that you are borrowing money from the broker in order to execute trades that are not covered by your cash account value. When placing orders on margin and those trades are out-of-the-money your cash balance will be negative.
- Provisional Credit: In rare cases, Webull may also extend a provisional credit line to high-value accounts. Trading on a provisional credit is essentially the same as margin trading except that your credit is not collateralized by your assets.
The three cases above are the main reason for a negative cash balance on Webull. If you think of your cash balance as your net account value this concept will make a lot more sense. Buying something with money that is not (yet) in your wallet will turn your net account balance negative.
But before moving let’s discuss the differences between buying power and cash balance and why it sometimes occurs that your buying power may be higher than your account value!
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Why is my buying power higher than my cash balance on Webull?
To illustrate the difference between cash and buying power imagine you are going to your favorite bar. The staff knows you well and you’ve been going there for the past 20 years. When you order a beer, instead of paying right away, they let you open a tab.
In this scenario, your cash balance is the amount of beer you can buy with the cash in your wallet, i.e. dollar bills. Buying power is the amount of beer that the staff will let you add to your tab without paying immediately.
When your buying power is higher than your cash balance on Webull that means that Webull has decided to provide your account with a temporary credit line. This can be in the form of a margin account or provisional credit.
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Why is my buying power negative?
On Webull negative buying power can only occur in margin accounts. Negative buying power essentially means that the power you have to purchase securities has dropped below your cash balance and below your extended credit line, i.e. margin.
Here are some typical scenarios where negative buying power can occur:
- Equity Drop: Negative buying power occurs when the equity value in your margin account falls below the maintenance requirement. In other words, Webull is no longer willing to extend the credit line, i.e. let you run up the tab.
- Margin Call: The above scenario will usually trigger a margin call. When a margin call is issued your purchasing power will also have turned negative.
- Account Liquidation: Should the margin call not be met and the buying power continues to be negative, Webull will start liquidating securities in your account to cover the costs and their downside until your buying power is zero.
When trading on margin, always keep an eye on your maintenance requirements! Having your portfolio partially liquidated can set you back years in your investment journey. For a more sustainable long-term strategy avoid margin trading and keep your buying power at the same level as your cash balance.
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Why do I have cash balance but no buying power?
While this occurs rarely, you may also find that you have no purchasing power on Webull even though you have a decent cash balance. This can have one of two reasons:
- Pending Trades: Since not all trades are executed immediately on Webull, cash that is tied up in pending trades does not count towards your buying power. Thus, the more cash you have locked up in pending trades the lower your purchasing power will be.
- Margin Maintenance Requirements: Trading on a margin account requires a certain level of cash balance to maintain the margin requirements. Depending on the amount of margin used some of your cash may already be tied to securing the maintenance requirements and will be deducted from your buying power.
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A negative cash balance can occur on Webull when orders are placed using provisional credit. This typically happens the funds that are granted after an instant deposit are used to place trades. Sometimes your cash balance may be higher than your buying power or vice versa. This is a result of the interplay between cash and credit in your account.
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