What is portfolio margin?
Portfolio margin is the margin requirement on a portfolio of derivative products with the risk against which the margin level is set being calculated using the portfolio as a whole, rather than individual positions. This usually reduces the total amount of margin required.
Where have you heard about portfolio margin?
As an investor, you will have come across portfolio margin if you trade in derivatives markets. Your financial adviser may have discussed it with you, and you may have read about it in guides to investment or in financial media.
What you need to know about portfolio margin.
Portfolio margin is a type of margin requirement that is calculated by netting off all the positions inside a derivatives account. Thus, a position that is showing strong gains can offset the fact that another position is showing losses. The risk facing the portfolio as a whole is the only relevant measure. This has freed up large sums of capital that would have been tied up in margin requirements, much of which will have been used in derivatives trading. But critics may point out that portfolio margins were introduced in stages between 1988 and 2008, the very period leading to the financial crisis.