Span Margin Vs. Portfolio Margin

When trading securities, options or derivatives, margin is a common term mentioned by brokers or dealers. Margin represents the collateral an investor uses to cover the risk associated with his investments. Span and portfolio margin are two measurements used to calculate the collateral for investments.

Defined

Span (standardized portfolio analysis of risk) margin is most common when trading options and futures. This process uses complex algorithms to compute the margin amount. Portfolio margin is for derivatives trading and allows margin positions (gains or losses) to offset each other, lowering margin requirements.

Features

Margin trading allows you to purchase investments by borrowing money from a brokerage house rather than using personal funds. Margin trading carries more risk than regular trading because brokerage houses charge more fees for margin trading and there's a potential for loss of investment.

Purpose

Brokerage houses use either span margin or portfolio margin to ensure investors can cover any investment losses. All investors are not equal, meaning the brokerage house may have higher margin requirements for investment accounts deemed riskier than others.

References

• Investopedia: SPAN Margin
• Investopedia: Portfolio Margin