Pyramiding

A method of increasing a position size by using unrealized profits from successful trades to increase margin.

Investopedia Says:
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.

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It is impossible to avoid them completely, but there is a systematic method you can use to control them. Limiting Losses

In general: form of business expansion that makes extensive use of financial Leverage to build complex corporate structures.

Fraud: scheme that builds on nonexistent values, often in geometric progression, such as a chain letter, now outlawed by mail fraud legislation. A famous example was the Ponzi scheme, perpetrated by Charles Ponzi in the late 1920s. Investors were paid "earnings" out of money received from new investors until the scheme collapsed.

Investments: using unrealized profits from one securities or commodities Position as Collateral to buy further positions with funds borrowed from a broker. This use of leverage creates increased profits in a Bull Market, and causes Margin Calls and large losses in a Bear Market .

Marketing: legal marketing strategy whereby additional distributorships are sold side-by-side with consumer products in order to multiply market reach and maximize profits to the sales organization.

1. Mailing-list testing technique that involves selecting and mailing progressively larger samples from a list until the total list is mailed, as long as the revenue from each mailing exceeds the costs; also called continuation mailing. This eliminates the risk of mailing a large volume of pieces to an unprofitable list. See also previous mail suppression.

2. Fraudulent business practice in which the chain of distribution is artificially expanded by an excessive number of distributors selling to other distributors at progressively higher wholesale prices, ultimately resulting in unnecessarily inflated retail prices.

The use of paper profits from an investment to finance purchases of additional investments. Pyramiding makes the buying of securities on margin more speculative. During the 1920s, stocks could be purchased for as little as 10 percent of their total value which, in the rising market prior to 1929, allowed speculators to pyramid small amounts of capital into very large holdings of common stocks. The speculative excesses of that period contributed to the subsequent crash in stock prices during the early 1930s. In 1934, as part of congressional legislation designed to reform the securities industry, the Federal Reserve Board was empowered to control the use of credit in stock purchase transactions. Since 1934 the required initial payment, called margin, has ranged from a low of 40 percent to a high of 100 percent. Although credit use in stock speculation remains popular, the 1920s style of pyramid investment is largely confined to real estate speculation where extensive use of credit is encouraged. Compare margin.