William Luke274_ Davis

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What is portfolio margining in forex and how does it reduce risk?

Portfolio margining calculates margin requirements based on the overall risk of a trader’s portfolio rather than treating each position in isolation. Institutions use advanced models that account for correlations between positions—e.g., a long EUR/USD and short GBP/USD offset some risk because both pairs share USD exposure. This reduces capital requirements while maintaining systemic safety. Retail brokers rarely offer true portfolio margining, though professional accounts may. Benefits: efficient capital use and recognition of natural hedges. Risks: underestimation of correlation breakdowns during crises can cause sudden margin calls. Portfolio margining illustrates how risk management can be dynamic, aligning capital with real exposure.