Explanation of Call Loans

Call loans are a type of loan that is provided to a trading brokerage. The purpose of this type of loan is to provide funds for traders so that they can trade on margin. 

Call loans typically carry with them a higher interest rate. Borrowing money to purchase securities is a high-risk endeavor, and lenders know that they have to charge a higher amount of interest in order to be compensated for this risk.

These loans can be called by the lender at any time without notice. This means that if they decide they want their money back, the individual that has the money in her margin account will have to pay it back immediately. This provides a certain amount of uncertainty for stock traders and makes it difficult to predict what will happen. 

The loans are secured with financial securities. This means that if the individual cannot repay the loan, the lender will simply take the shares of stock that were used to secure the original loan. 

Brokerage firms secure these loans and then, in turn, give the loans to the traders who wish to trade on a margin account. Traders have to meet specific credit criteria in order to be approved.

blog comments powered by Disqus
Scottrade