Federal Call

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Buying On Margin

    The purchase of an asset by paying the margin and borrowing the ...
  2. Initial Margin

    The percentage of the purchase price of securities (that can ...
  3. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  5. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  6. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...
Related Articles
  1. A Look At Corporate Profit Margins
    Markets

    A Look At Corporate Profit Margins

  2. Finding Your Margin Investment Sweet ...
    Investing Basics

    Finding Your Margin Investment Sweet ...

  3. Why Leveraged Investments Sink
    Options & Futures

    Why Leveraged Investments Sink

  4. Day Trading Strategies For Beginners
    Trading Strategies

    Day Trading Strategies For Beginners

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center