Portfolio Margin

What is portfolio margin?

Portfolio margin is a risk-based account framework that sets margin requirements from modeled price scenarios. The broker groups eligible positions, revalues them across prescribed price moves, applies permitted offsets and minimum charges, then combines the resulting requirements. It is an alternative to strategy-based margin, which applies set formulas to each recognized position and strategy.

How is portfolio margin calculated?

The prescribed valuation ranges include ±15% for individual equities and narrow-based indexes, +6%/−8% for high-capitalization broad indexes, and ±10% for other broad indexes.

An approved pricing model revalues each eligible position. The calculation nets permitted gains and losses, applies the allowed offsets between groups, and combines the greatest portfolio losses with the applicable minimums and additional requirements.

Portfolio margin vs strategy-based margin

The framework recognizes the interaction between positions. A stock and protective put produce a different payoff from the stock alone; the model revalues those positions together within the applicable group.

Strategy-based margin also recognizes defined strategies and hedges through its own formulas. Preview the complete position under each framework your broker offers before choosing the account type.

Stock and protective put example: expiration payoff

The worked position buys 1,000 shares at $50 and ten standard $45 puts at a $2 premium. The stock costs $50,000 and the puts cost $2,000, for a $52,000 total.

At $42.50 expiration, the stock is worth $42,500 and the puts supply $2,500 of exercise value. The combined $45,000 value produces a $7,000 loss. At $57.50, the combined value is $57,500, producing a $5,500 gain.

The position breaks even at $52 and has a $45,000 expiration value floor. The margin preview separately revalues positions under the broker’s account framework, so build the shares and puts in the options profit calculator for the payoff, then match the planned quantity with that preview and the available buying power.

Who can use portfolio margin?

FINRA’s interpretation links minimum account equity to the firm’s real-time monitoring capability. Customer approval, eligible products and the broker’s house requirements complete the account setup.

Limitations of portfolio margin

• The requirement comes from the approved pricing model and the rule’s ranges, such as ±15% for an individual equity. A gap beyond the tested range lands outside those scenarios, so keep equity above the requirement for moves larger than 15%.
• Keep a cushion for adverse moves. The model revalues positions as prices change, so after an adverse move the same holdings need more equity.
• Size from the payoff’s maximum loss, separate from the margin figure. In the example, the $7,000 maximum expiration loss comes from the payoff, while the requirement comes from the broker’s model and house rules.
• Confirm eligibility with your broker first. Minimum equity depends on the firm’s real-time monitoring capability, and the broker sets its own approval, product and concentration requirements.
• Plan the deposit or hedge before a deficiency. Rule 4210(g)(10) provides a three-business-day deposit or hedge process, followed by opening-order restrictions and liquidation duties.

Bottom line

Portfolio margin sets an account’s requirement from the modeled loss of its eligible positions taken together, subject to minimums and house requirements, so a hedge counts through its effect on that loss. Use the broker’s margin preview for each planned position, size the trade from its maximum loss rather than the requirement alone, and keep enough equity above the requirement to absorb an adverse move.