Span margin: a phrase you don't mind hearing at your gymnastics lesson, but one you'd rather avoid at either the gynecologist’s or proctologist's office.
In the financial world, SPAN represents a particular system for measuring risk. It's a series of algorithms designed to look at a trader's portfolio and determine the level of risk it implies.
The goal of the SPAN margin is to determine the margin requirements for a particular account. "Margin" in this case refers to the money a trader can borrow with which to trade. When they borrow, they have to keep their accounts above a certain value at all times, so that their broker (who lent them the cash) knows that they're reasonably assured of getting their money back if they need to conduct a margin call.
However, determining the proper minimum requirement gets tricky, especially if traders are dealing in complicated investments, like options. The value of these can change quickly, so keeping up with an evolving portfolio takes some complicated math and a good deal of vigilance.
Luckily, the SPAN system can do both automatically. The SPAN margin thus calculates the appropriate margin requirement, using its complex risk-computing models, giving a reliable reading for the risk levels of a particular trader's account on any given day.
Related or Semi-related Video
Finance: What is risk?4 Views
finance a la shmoop. what is risk? it's a game! this one remember Parker Brothers
roll the dice move your armies take Kamchatka own the world! okay so that's a [risk board game pictured]
slightly different variant than investing risk. but think about the
notion of risk and reward being married to each other in a we fight every
Thanksgiving and question why we were ever married in the first place kind of
way. buy a US government bond and the odds it doesn't fully pay as promised are
about equal to the odds of our being nuked. typically investors trade-off
between risk and reward if you take high risk you want high reward, or at least
the potential of it. it would be kind of stupid to take high risk for no reward
right? well the US government pays its bills hi Greece we're looking at you. but
a bond only gets you a few percent a year return these days. had you bought
call options on Amazon when it was 500 bucks a share with those call options at
$700 expiring four months later, well you'd have taken massive risk but at the [chart showing growth of amazon stock going up]
end of those four months had you timed things right
you'd have made like 20 times your money. how do you timed it just one month early
or late well you'd have lost everything. investing in the stock market generally
carries two flavors of risk. there's market risk ie the risk that the whole
market goes down and you lose money that way, and then there's intrinsic or
individual stock risk. ie the market just trundles along but you pick a bad stock
and it goes down while the market is flat or goes up. got it ?market risk .the
whole world blows up and your nest egg gets taken down with it. intrinsic risk.
it's only you who sucks. you put all your eggs in a basket with a bad handle and
well now there are a lot of chickens that ain't going to happen. [eggs in basket]
Up Next
What are systematic and unsystematic risk? Take a risk on this video and hit play.
What is market risk? Market risk refers to outside events that can move the markets into above average volatility due to fears over unquantifiable...