What is concentration?

There are special maintenance requirements in cases where 50% or more of a total portfolio is concentrated into a single margin position. When this occurs, TD Ameritrade checks to see whether:

  • A single position makes up more than 50% of a total portfolio, and;
  • That single position's market value is greater than or equal to the total equity in a margin account

Securities with special margin requirements will display this on the trade tab on when creating an order. This can be seen below:

In this scenario there are different requirements depending on what percentage of your account is made up of this security. When the stock is 50%-69% of your total stock position it requires 70% of the notional value as a maintenance requirement. When the security is 70%-100% of your account it requires you have 100% of the value of the security in available funds.

***Note: TD Ameritrade rounds to the nearest whole number, so an account that has 49.6% concentration in a security will be rounded up to 50% and held at the second tier.

Example 1:
Client has the following positions

Current client account equity = $24,000

In this scenario ABC stock is 72% of the total holdings of the client. ABC stock has special margin requirements of:

  • No concentration = 30%
  • 50% concentration = 30%
  • 70% concentration = 40%
  • 90% concentration = 40%

So, given this table of requirements and where ABC is in relation to the clients holdings (73%), and over his equity of $24,000, his requirement on the position will be 40%. This is an increase above the stocks normal requirement of 30%

Example 2:
Client has the following positions:

Current client account equity = $20,000
In this scenario AAA stock is 100% of the clients holdings. AAA stock has special requirements of:

  • No concentration = 50%
  • 50% concentration = 50%
  • 70% concentration = 70%
  • 90% concentration = 70%

So given this table of requirements and the stock being the clients entire holding his requirement on the position will be 70%. This is an increase above the normal requirements of 50% as it is over his equity and 100% concentrated.

Example 3:
Client has the following positions

Current client account equity = $50,000
In this scenario BBB is 51% of the clients holdings which would constitute concentration of 40% under the following concentration tiers:

  • No concentration = 30%
  • 50% concentration = 40%
  • 70% concentration = 50%
  • 90% concentration = 50%

The reason this security will not be held at 40% is due to the clients equity being higher than the positions value:

Equity: $50,000 > position value: $25,000

***Note: Margin requirements (on all positions, whether concentrated or not), may change at any time with or without notice. TD Ameritrade reserves the right at any time to adjust the minimum maintenance requirement of concentrated positions. This adjustment can be done on an individual account basis, as well as on a stock-by-stock basis, depending on a stock's trading volatility and other factors. Your account may be subject to higher margin equity requirements based on how market fluctuations affect your portfolio. ***

Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. Margin is not available in all account types. Margin trading privileges subject to TD Ameritrade review and approval. Carefully review the Margin Handbook and Margin Disclosure Document for more details. Please see our website or contact TD Ameritrade at 800-669-3900 for copies.