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.

  1. Margin

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

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Paper Profit (Paper Loss)

    Unrealized capital gain (or capital loss) in an investment. It ...
  4. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  5. Dividend Reinvestment Plan - DRIP

    A plan offered by a corporation that allows investors to reinvest ...
  6. Rule Of 72

    A shortcut to estimate the number of years required to double ...
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  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. Can mutual funds use leverage?

    Traditionally, mutual funds have not been considered leveraged financial products. However, a number of new products have ... Read Full Answer >>
  3. How do hedge funds use leverage?

    Hedge funds use several forms of leverage to chase large returns. They purchase securities on margin, meaning they leverage ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
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