What is Portfolio Margin?

Portfolio Margin is an alternative to Regulation T margin Tooltip  that often results in lower margin requirements and increased leverage.

It is generally most appropriate for investors who incorporate sophisticated options strategies to offset market or exposure risk.

How does Portfolio Margin work?

Portfolio Margin bases margin requirements Tooltip on the risk of an entire portfolio rather than the sum of individual positions and strategies. The process simulates up- and down-market movements in a theoretical pricing model to determine the amount of risk in a portfolio. These scenarios can measure the potential loss in the account that would result if certain changes in price or implied volatility Tooltip occur to the positions in the account.

Clients must have $125,000 initial minimum account equity and be approved to trade short, uncovered options to be eligible for Portfolio Margin.

How does leverage work with Portfolio Margin?

Clients should understand that Portfolio Margin generally permits greater leverage in an account, and greater leverage may create greater losses in the event of adverse market movements. 

Securities eligible for Portfolio Margin include equities, equity options, ETFs, and index options. Not all securities qualify for Portfolio Margin. For example, stocks under U.S. $5 and non-national exchange securities are ineligible. Ineligible securities will be held at standard Schwab margin requirements.

A chart depicts the cost of an example covered call using standard margin, which is 46,821 dollars, vs portfolio margin, 26,917 dollars, a difference of nearly 20,000 dollars. The example is for illustrative purposes. Please note that in instances of concentrated positions, illiquid options, or increased volatility, Portfolio Margin requirements may be higher.

Schwab's highly competitive, tiered interest rates mean the more you borrow, the lower your margin borrowing rate may be.

How is a position's Portfolio Margin requirement calculated?

Positions are allocated to separate portfolios within an account according to underlying security. A margin requirement is computed by stressing a portfolio at 10 equidistant intervals ("valuation points") representing assumed market moves, both up and down, in the current value of the underlying security or index. Gains and losses at each valuation point are netted and the greatest net loss among the valuation points is the margin requirement for that underlying security. 

A number of alternate calculations are also carried out that may detect risk from a variety of additional sources. The total margin requirement is the greater of:

  • The sum of the margin requirements for each underlying security, or
  • The maximum margin requirement calculated by the alternate calculations.

Important considerations

How much time will I have to meet a margin call?

There are several types of calls that could occur in Portfolio Margin accounts:

  • Standard maintenance Tooltip and minimum equity calls Tooltip – Typically have until the end of the second business day.
  • Regulatory – OCC calls Tooltip  – Typically due at the end of the second business day.
  • Concentration calls Tooltip – Typically due the same day the call is issued.

Depending on market conditions, Schwab may liquidate positions without prior notice to reduce risk in the account.

What happens to my Portfolio Margin if my account equity falls below $100,000?

Accounts that fall below the regulatory minimum equity requirement of $100,000 will be restricted to closing trades only until the equity in the account increases above $100,000 or Portfolio Margin is turned off.  

Important: If Portfolio Margin is turned off (typically after the third day below the minimum equity), the account will reset to Regulation T calculations, which may result in higher margin requirements and the need to offset positions earlier than anticipated at greater risk.

Can I day trade with a Portfolio Margin account?

Yes, but day trading in a Portfolio Margin account requires substantially greater equity by regulation. 

Portfolio Margin accounts that are found to engage in a day trading strategy without the required equity by regulation may lose eligibility for Portfolio Margin.

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