Pyramiding

DEFINITION of 'Pyramiding'

A method of increasing a position size by using unrealized profits from successful trades to increase margin. Pyramiding involves the use of leverage to increase one's holdings by making use of an increased unrealized value of current holdings. Since the use of leverage is involved, this is a riskier strategy than one which only makes use of cash to purchase securities.

BREAKING DOWN 'Pyramiding'

An investor who is pyramiding uses excess margin from the increasing price of a security in his or her portfolio to purchase more of the same security. This is generally a slow method of increasing one's position size, as the margin increases will permit successively smaller purchases. Additionally, whether the pyramiding involves only a single security or a few securities, the risk of a portfolio concentration increases with each level of the pyramid.

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