What is 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?” Portfolio margin 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, and recognition of offsetting and correlated positions. The result is a margin requirement that more closely reflects the economic risk and not just notional exposure.

Why do I need a portfolio margin account

The portfolio level risk evaluation allows us to leverage a larger amount from your account than the standard Reg T margin account you initially open with us. This higher leverage capability is needed in order to invest in and borrow against our 200/100 and 250/150 long short strategies or borrow against our 140/40 long short strategy.

How do I obtain a portfolio margin account? 

You’ll be requested to upgrade your account either during the setup of a 200/100 or 250/150 long short strategy in the “Upgrade account” step or by clicking on the “Upgrade to unlock” within your Portfolio Line of Credit if you’re invested in 140/40 and selecting “Apply for portfolio margin.” If you qualify, you’ll then be required to review and acknowledge receipt of a Portfolio Margin Agreement and Disclosures. 

If you don’t qualify, you’ll be shown a pop-up letting you know that portfolio margin is not available to you. This is based on the information you provided to us in your account settings about your investment profile. If you believe your investment profile is inaccurate and you should qualify for portfolio margin, you will need to adjust your responses in your account settings.

How long does the approval process take?

Once requested and your account is funded with the $500,000 account minimum, the approval process can take 3-5 business days for review and approval.

What activities can I perform while my account is under review?

Your account will continue to function normally while the review is in progress. You can log in, access your dashboard, manage your settings, and use the platform as usual. If any actions are temporarily limited during the review, please email us at help@frec.com

How is your portfolio line of credit calculated for portfolio margin accounts?

Unlike standard margin accounts, portfolio margin accounts don’t have a fixed borrowing percentage and can fluctuate throughout the day. Portfolio margin 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.

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, or 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 lower than what position-level rules would imply.

Risks of portfolio margin

Portfolio margin does not eliminate risk nor does it guarantee lower margin requirements. Because it's designed for complex strategies, it allows for higher leverage and carries greater risk, with potential for significant losses, including losing more than invested, if markets move against you. It tends to be more risk-sensitive, especially with concentrated portfolios. Due to these risks, this type of account is only available to investors who meet higher eligibility requirements such as: minimum account equity thresholds, approval based on experience and risk understanding, and ongoing compliance with broker requirements. Additionally, there is a potential for a margin call which will typically be covered quickly and with little warning.

Will my account number or statements change

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

How are margin calls treated for portfolio margin accounts

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 and not just at the end of day.

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.