Federal Call

DEFINITION of 'Federal Call'

A special type of margin call requiring a trader to deposit sufficient cash in order to meet federal requirements on the amount of credit that brokers may extend. These margin requirements are set by Regulation T of the Code of Federal Regulations, Title 12 - Banks and Banking. Currently the margin requirements are 50% for equities. For short sales, the margin requirement is between 100% and 150% of the current market value of the security being sold short. Regulatory authorities has the power to change these margin requirements as they deem necessary.

BREAKING DOWN 'Federal Call'

The purpose of Regulation T and federal calls are to moderate the amount of financial risk present in the securities markets. Since using margin amplifies both gains and losses relative to the initial investment, a broad overuse of margin has the potential to cause instability in financial markets as a whole. Since disruptions in the financial markets can interfere with the broader economy, regulators wish to have the controls necessary to promote orderly market functioning.

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RELATED FAQS
  1. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    Learn how FINRA and the Federal Reserve regulate margin account trading, and understand how pattern day trading can impact ... Read Answer >>
  2. How are margin calls regulated by the SEC?

    Learn how FINRA and the Federal Reserve Board regulate trading in margin accounts, and see how brokers can liquidate positions ... Read Answer >>
  3. What are the different types of margin calls?

    Learn the differences between margin calls and fed margin calls while reviewing the definitions of each and how to satisfy ... Read Answer >>
  4. Why does the Federal Reserve Board regulate which stocks can be bought on margin?

    Find out why the Federal Reserve Board began regulating margin stock purchases in 1934 and why margin requirements do not ... Read Answer >>
  5. How does a broker decide which customers are eligible to open a margin account?

    Learn how brokers have the sole discretion to determine which customers can open margin accounts, and understand the rules ... Read Answer >>
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