Portfolio Margin vs. Regulation T Margin

February 13, 2024 Advanced
Portfolio margin offers qualified individuals access to risk-based margin. Here's the difference between portfolio margin and Regulation T margin.

Risk-based margin is a way of calculating margin requirements based on a position's potential risk. In the past, traders had to be market makers with access to the exchange floor to use risk-based margin. Today, qualified Schwab clients can access a type of risk-based margin known as portfolio margin.

Before continuing, it's important to understand that portfolio margining involves a great deal more risk than cash accounts and is not suitable for all investors. Minimum qualification requirements apply. Portfolio margining is not available in all account types.

Portfolio margin computes real-time margin for stock and options positions based on their risk rather than the fixed percentages and strategy rules associated with Regulation T margin1.

Portfolio margin at Schwab uses theoretical pricing models to calculate a position's real-time losses at different price points above and below the current underlying price. The largest theoretical loss identified is the margin required for the position.

Schwab uses an industry standard options pricing model to calculate, in real time, the theoretical fair value for both put and call options by using inputs of underlying price, strike price, time to expiration, volatility, the risk-free interest rate, and dividend yield (if applicable).

As a result, portfolio margin often has lower margin requirements and increased leverage compared to Regulation T margin requirements. The following chart reviews other differences between portfolio margin and Regulation T margin.

Portfolio margin Regulation T margin
Maintenance excess (buying power) = Net liquidation value – Margin requirements Margin equity = Stock + (+/– Cash balance)
No difference between initial and maintenance margins Maintenance margin = 50% initial for marginable securities
Treatment of volatility is applied to margin requirement 25% SRO* requirements; marginable long equities = 25% requirement; short equities = 30% requirement. *SRO (Self- Regulatory Organization)
Generally broad-based indexes: –15% and 15%; equities: +15% and –15%; allows up to 6.6 to 1 leverage Schwab uses 30% minimum house maintenance requirement on short and marginable long equities
Allows for correlation and margin offsets between similar investments Options requirements computed in real-time using FINRA rules and fixed percentages
Long options are marginable and can be used as collateral for other marginable positions Long options are not marginable and have a 100% requirement

Now that you have an introduction to portfolio margin, and a basic understanding of some of the features and characteristics when compared to Regulation T margin, Schwab clients can learn more about how portfolio margin works here.

Carefully read The Charles Schwab & Co., Inc. Guide to Margin for more details. For specific questions, please contact us at 877-752-9749.

1Formally known as Regulation T, it's the initial margin requirement set by the Federal Reserve Board. According to Reg T requirements, an investor or trader may borrow up to 50% of marginable securities that can be purchased (such as most listed stocks).

When considering a margin loan, you should determine how the use of margin fits your own investment philosophy. Because of the risks involved, it is important that you fully understand the rules and requirements involved in trading securities on margin. Margin trading increases your level of market risk. Your downside is not limited to the collateral value in your margin account. Schwab may initiate the sale of any securities in your account, without contacting you, to meet a margin call. Schwab may increase its "house" maintenance margin requirements at any time and is not required to provide you with advance written notice. You are not entitled to an extension of time on a margin call.

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options." Supporting documentation for any claims or statistical information is available upon request.

Investing involves risks, including loss of principal.

With long options, investors may lose 100% of funds invested.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.