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What is Pyramiding?

Pyramiding refers to purchasing additional units of a security with unrealized profits on open trades.

How Does Pyramiding Work?

Investors engage in pyramiding in order to increase their portfolio position using the paper profits from the rising value of open trades in order to purchase additional units of securities. For instance, if an investor has an open trade for XYZ stock, the market price of which rises substantially, he may use the unrealized excess value to purchase additional units of XYZ on margin.

Why Does Pyramiding Matter?

Though an effective use of unrealized profits, pyramiding grows a portfolio very slowly, because profits may not be large enough to purchase many shares and such profits, moreover, occur sporadically and are not reliable.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.