Portfolio Margin vs. Regulation T Margin

February 13, 2024Advanced
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 marginRegulation T margin
Maintenance excess (buying power) = Net liquidation value – Margin requirementsMargin equity = Stock + (+/– Cash balance)
No difference between initial and maintenance marginsMaintenance margin = 50% initial for marginable securities
Treatment of volatility is applied to margin requirement25% 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 leverageSchwab uses 30% minimum house maintenance requirement on short and marginable long equities
Allows for correlation and margin offsets between similar investmentsOptions requirements computed in real-time using FINRA rules and fixed percentages
Long options are marginable and can be used as collateral for other marginable positionsLong 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).

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