Portfolio Margin
Portfolio margin is a risk-based margin system used by brokerage firms to calculate the margin requirements for a trader’s portfolio based on the overall risk of all holdings. Unlike traditional margin accounts that calculate requirements for each position separately, portfolio margin accounts consider the combined risk, allowing for lower margin requirements if the portfolio is diversified. This can enable traders to use leverage more efficiently, but it also requires sophisticated risk management.
Example
A trader with a portfolio margin account may face lower margin requirements for holding a diversified set of stocks and options, freeing up capital for other investments.
Key points
• A risk-based system for calculating margin requirements in a trader’s portfolio.
• Considers the combined risk of all holdings, potentially allowing for lower margin requirements.
• Requires careful risk management due to the use of leverage.
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