What Affects an Account’s Cash Balance?

Your cash balance is one component to your account's net liq. However, if you are wondering how different types of positions can affect your cash balance, then please continue below.

To learn how to calculate your net liq, please click here.

Are you looking for your account's cash balance? Please click here.

Buying Options or Stocks

Will decrease your cash balance

Possibly the most straightforward concept of how your portfolio's cash balance reduces is by purchasing stock, options (outright), or long spreads (verticals).

Examples (Gross, not including commissions & fees):

  • Long 100 shares @ $50 = Cash balance decreased by $5,000
  • Buy 10 calls on XYZ @ $1.00 = Cash balance decreased by $1,000 ($1.00 x 100 options multiplier x 10 qty)
  • Debit spread (1-lot) - Buy XYZ 55 call @ $2 and Sell XYZ 60 call @ $1 = Cash balance decreased by $100 ($2 - $1 = $1.00 x 100 options multiplier = $100).

Short Options or Stocks

Will increase your cash balance and may be higher than your net liq

Generally speaking, when you sell something you receive money for it. Well, that same concept carries when you sell premium or are short shares. Whenever you short stock, sell options or sell credit spreads your account will receive cash in return. Holding a portfolio of short options or stock positions is one instance where you may see your account's cash balance be higher than your account's net liq. 

Examples (Gross, not including commissions & fees):

  • Short 100 shares @ $50 = Cash balance increased by $5,000
  • Short 1 put on XYZ @ $1.00 = Cash balance increased by $100
  • Credit spread (1-lot) - Sell XYZ 45 put @ $3 and Buy 40 put @ $1 = Cash balance increased by $200 ($3 - $1 = $2.00 x 100 options multiplier = $200).

Assigned or Auto-Exercised Shares

Your cash balance will reflect the resulting position

Short Stock

One frequently asked question is what happens when you have an account that is assigned short stock from a short call or auto-exercised a long put? We all know that the only way to close out a short stock position is by buying it back, or a buy to close order. That said, how can we purchase an assigned short stock position if the portfolio’s Net Liq is substantially less than the cost to buy back the stock? Well, if you check your cash balance then you’ll notice that the proceeds (money) from the short stock position reflected in your cash balance.

Long Stock

On the other hand, if you are assigned long stock from a short put or auto-exercised from a long call, and you know that your account cannot sustain the assignment then chances are (aside from the margin call) your account will be margining securities. How do we find out whether or not your account is margining securities (borrowing money to long stock)? The same way by looking up our portfolio’s cash balance. To learn more, please click here.

Futures and Options on Futures

When trading futures, your account is separated. That means your futures trades and your securities (equities & equity options) trades are held in two different account: a securities account and a futures account. This is all happens behind the scenes. It is important to understand this to truly understand how your cash balance is affected. To learn more about why your account is separated, please click here.

Similar to equity options, any credit received when opening a short options on futures positions will increase the cash balance of your futures cash balance. On the other hand, the debit paid for a long options on futures position will deduct from your securities cash balance. However, that is not the case when opening any outright futures positions. When buying to open or selling to open an outright futures position, your securities account cash balance will deduct the overnight requirement. That said, futures and options on futures are Section 1256 products, which means they are subject to mark-to-market when held from one trading session to another. As a result, based on the performance of the position, cash will either enter your securities account as a credit or deduct from your account as a debit. When your futures position (including options on futures) is closed then the net gain plus the overnight requirement will sweep back to your securities account. However, when there is a loss, then the net loss minus the overnight requirement will sweep back to your securities account. Furthermore, if the loss on a futures position is higher than the performance bond (overnight requirement) then your securities account is subject to a further cash deduction.