Portfolio Margin is a method available for certain accounts for computing required margin for stock and option positions that is based on the risk of the position rather than the fixed percentages of Regulation T and strategy based margin. This method uses theoretical pricing models to calculate the loss of a position at different price points above and below current stock or index price. The largest loss identified is the margin required of the position. The result is often lower margin requirements than would be calculated from the old method.
Stock and option positions are tested with a minimum +/- 15% price changes. Small cap broad-based indices are tested with a minimum -12% +10% price changes. Large cap broad-based indices are tested with a minimum -12% +10% price changes. The range is divided into ten equidistant points, and the loss/gain on the position as a whole is calculated at each of the ten points (scenarios). Stress testing is done on a position’s implied volatility and the margin requirement will be the largest loss calculated on any given scenario. Thus, hedged positions may have lower requirements than non-hedged positions. However, positions that are concentrated will be evaluated using a greater range and thus the requirement on these positions will be greater in comparison to a non-concentrated position.
In the event your account falls below $100,000 Net Liquidating Value; you will have to bring your account above this watermark or you will be removed from the portfolio margining system.
Portfolio Margin Minimum Requirements
- Each account must have an initial net liquidating value of at least $125,000
- Smaller accounts cannot be combined to meet the $125,000 requirement
- Available only to margin (non-IRA) accounts
Portfolio Margin related references