Why Is My Opening Balance Equity a Negative Number?
Original post by Joe Andrews of Demand Media
Hunting down the reasons your equity balance appears as a negative number can be a frustrating, long process. Unfortunately, there are countless reasons why a statement may display a negative equity balance. However, by working through some common reasons why negative numbers appear, you may more quickly find the root of your problem and take corrective action.
An order to sell equities that hasn't closed is a common reason for negative equity in an account. Because the shares are sold, they appear as a negative number on the statement, but without payment from the buyer, a negative number appears. Stock market regulations require stock equity trades to close in three days, at which time the statement should show a balanced transaction.
Shares in the process of transferring out of an account may appear as a negative number to show the act of this equity being removed from the account. If these are the only shares in the account, the equity balance will revert to zero once the transfer has completed. According to the Financial Industry Regulatory Authority, transfers often take six days.
Shorting a stock is the action of selling shares you don't own, with the promise to repurchase them in the future. Because repurchase is mandatory, short selling creates a negative number on the equity line of your statement to show the amount you'll need to reclaim to bring your account back to a positive total.
Margin represents funds an investor borrows from the value of their equity account to either use as leverage to purchase more shares or to withdraw for other purposes. Although margin is usually a separate line item on statements, it does represent money from equities that must be repaid, and could help create a negative equity balance in the account.
Often, new investors will mistake the daily activity in equities for the actual account balance. The activity line on a statement displays the gains or losses during the session or, if the market is closed, from the previous session. Determine if you're reading the statement correctly by visiting the help section of the brokerage website.
- Securities and Exchange Commission: Settling Securities Transactions, T + 3
- FINRA: Understanding the Brokerage Account Transfer Process
- Disnat.com; Trading Basics From A to Z; What Is Short Selling?
- Securities and Exchange Commission; Margin: Borrowing Money to Pay for Stocks
About the Author
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.