Pyramiding

AAA

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.

RELATED TERMS
  1. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  2. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Dividend Reinvestment Plan - DRIP

    A plan offered by a corporation that allows investors to reinvest ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Equity

    The value of an asset less the value of all liabilities on that ...
Related Articles
  1. Home & Auto

    Leveraging Leverage For Bigger Profits

    Leverage is like fire. Find out how to use it to heat up your investing without burning your portfolio.
  2. Options & Futures

    Leveraged Investment Showdown

    Margin loans, futures and ETF options can all mean better returns, but which one should you pick?
  3. Options & Futures

    Why Leveraged Investments Sink

    This powerful tool can have you swimming in money or drowning in underwater equity.
  4. Retirement

    The Leverage Cliff: Watch Your Step

    Understanding your risk tolerance level can save you a lot of grief and financial instability in the future.
  5. Active Trading Fundamentals

    Pyramid Your Way To Profits

    This strategy involves scaling into profitable investments as they continue to rise.
  6. Active Trading Fundamentals

    Limiting Losses

    It is impossible to avoid them completely, but there is a systematic method you can use to control them.
  7. Active Trading

    Triple Screen Trading System - Part 8

    Making use of the tightest stops in entering and exiting positions is what this three-part system is all about.
  8. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  9. Stock Analysis

    How Rollins Inc. Transformed from Radio to Pest Control

    Discover how Rollins, Inc. grew and expanded, making numerous acquisitions, transitioning from the radio industry to the pest control industry.
  10. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
RELATED FAQS
  1. How does pyramiding work?

    Pyramiding is a method of increasing margin by using unrealized returns from successful trades. Pyramiding works by surrendering ... Read Full Answer >>
  2. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  3. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
  5. Are there leveraged ETFs that follow the retail sector?

    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>
  6. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!