Portfolio margin

Understanding portfolio margin

Portfolio margin is a way to evaluate risk at the portfolio level, rather than on a position-by-position basis. It calculates margin requirements by modeling how a portfolio might perform under a range of hypothetical stress scenarios, such as sharp market moves or sector-specific shocks.

Rather than asking, "How risky is this position by itself?" it asks, "How risky is this portfolio as a whole under stress?"

Key features of portfolio margin include:

• Risk assessed across the entire portfolio
• Margin based on potential losses under modeled scenarios
• Recognition of offsetting and correlated positions

The result is a margin requirement that more closely reflects economic risk, rather than just notional exposure.

Why would I need a portfolio margin account?

Evaluating risk at the portfolio level lets us extend more leverage from your account than the standard Reg T margin account you open with us initially. This higher leverage is needed to invest in and borrow against our 200/100 and 250/150 long short strategies, or to borrow against our 140/40 long short strategy.

Obtaining a portfolio margin account

If you qualify, you'll be asked to review and acknowledge a Portfolio Margin Agreement and Disclosures.

If you don't qualify, you'll see a pop-up letting you know that portfolio margin isn't available to you. This is based on the investment profile information in your account settings. If your financial situation or investment experience has changed since you completed your profile, update your account settings to reflect your current circumstances, and we'll re-evaluate your eligibility.

Approval timeline

Once you've requested portfolio margin, and your account is funded with the $500,000 account minimum (or you've requested it to increase your borrowing capacity for a 140/40 long short strategy), the approval process typically takes 3-5 business days for review.

Using your account during review

While the review is in progress, you can log in, access your dashboard, manage your settings, and use the platform as usual. Contact us if any actions are temporarily limited during the review.

How your portfolio line of credit is calculated

Unlike standard margin accounts, portfolio margin accounts don't have a fixed borrowing percentage and can fluctuate throughout the day. Borrowing power fluctuates based on your portfolio's overall risk and available excess margin. For Long short strategies, an additional buffer is applied to your portfolio to protect against market volatility (at least 35% for portfolio benchmarked to S&P 500 and Russell 1000, and at least 20% for MSCI ADRs).

When portfolio margin is most effective

Portfolio margin tends to be most effective for portfolios that are:

• Diversified across securities and sectors
• Hedged using long short positions
• Designed with controlled net exposure

In these cases, portfolio margin may require less capital than traditional margin, because the portfolio's potential losses under stress are modeled as lower than what position-level rules would imply.

Risks of portfolio margin

Portfolio margin doesn't eliminate risk, and it doesn't guarantee lower margin requirements. Because it's designed for complex strategies, it allows for higher leverage and carries greater risk, including the potential to lose more than you invested if markets move against you. It tends to be more risk-sensitive, especially for concentrated portfolios.

Because of these risks, this type of account is only available to investors who meet higher eligibility requirements, including:

• Minimum account equity thresholds
• Approval based on experience and risk understanding
• Ongoing compliance with broker requirements

There's also potential for a margin call, which typically must be covered quickly and with little warning.

Investing involves risk, including the risk of loss. Long short strategies increase risk through margin borrowing and short positions.

Your account number and statements

Your account number and statements remain the same. You can find your account number in Account settings under the Accounts tab, or on your account documents under the Documents tab.

How margin calls are treated

Margin calls for portfolio margin accounts work differently from standard margin accounts. Because portfolio margin is based on your portfolio's overall risk, margin calls can be issued at any point during the trading day, not just at day's end.

If you receive a margin call, you must initiate a deposit the same day to avoid liquidation. Given the increased risk associated with portfolio margin accounts, we reserve the right to liquidate positions to cover a margin call at any time and without prior warning.