A risk-based margin regime that sets requirements from a stress test of the whole portfolio rather than fixed percentages per position, rewarding genuine hedges.
Instead of adding fixed requirements per position, the broker revalues the entire portfolio under a grid of moves — typically plus or minus 15% for equities, with volatility shifts — and charges the worst outcome.
Hedged books benefit enormously; concentrated naked short books sometimes get charged more, not less. US accounts generally need a six-figure minimum and an approval process, and the requirement moves daily with implied-volatility.
Example: an account holds a $2,000,000 stock portfolio and index puts as a hedge. Under reg-t-options-margin the puts are simply an expense. Under portfolio margin the stress test recognises that the puts profit in the down scenario, and the requirement falls by several hundred thousand dollars.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.