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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RELATED FAQS
  1. What is a risk pyramid and why is it important?

    Learn about the risk pyramid and what it is used for; discover why it is important for investors to use the risk pyramid ... Read Answer >>
  2. How does pyramiding work?

    Pyramiding is a method of increasing margin by using unrealized returns from successful trades. Pyramiding works by surrendering ... Read Answer >>
  3. What is the difference between a Ponzi and a pyramid scheme?

    Pyramid schemes and Ponzi schemes share many similar characteristics in which unsuspecting individuals are fooled by unscrupulous ... Read Answer >>
  4. What is the difference between leverage and margin?

    In financial terms, leverage is reinvesting debt in an effort to earn greater return than the cost of interest. When a firm ... Read Answer >>
  5. How does leverage work in the forex market?

    The concept of leverage is used by both investors and companies. Investors use leverage to significantly increase the returns ... Read Answer >>
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