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.

INVESTOPEDIA EXPLAINS '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. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  2. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  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. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
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 >>
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

    What is Gearing?

    Gearing, also called leverage, is the degree to which a company’s operations are funded by lenders versus shareholders.
  9. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  10. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center