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. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  3. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  4. Maintenance Margin

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

    The percentage of the purchase price of securities (that can ...
  6. Borrowing Power Of Securities

    The value associated with being able to invest in securities ...
RELATED FAQS
  1. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  2. What are some common cash-debt strategies that occur during a spinoff?

    Cash-debt strategies that are commonly used to in a spinoff to enable the parent company to monetize the spinoff are debt/equity ... Read Full Answer >>
  3. How can I determine the degree of financial leverage (DFL) for a particular company?

    Fundamental analysis uses the degree of operating leverage (DFL) to determine the sensitivity of a company's earnings per ... Read Full Answer >>
  4. Why should investors be wary of off balance sheet financing activities?

    Investors should be wary of companies that rely heavily on off-balance-sheet financing because it may make those businesses ... Read Full Answer >>
  5. What major events and policy decisions led to the savings and loan crisis (S&L crisis)?

    The major events and policy decisions that led to the Savings and Loan Crisis were a period of volatility for interest rates ... Read Full Answer >>
  6. What are the key differences between financial risk and business risk to a company?

    Financial risk refers to a company's ability to manage its debt and financial leverage, while business risk refers to the ... Read Full Answer >>
Related Articles
  1. Markets

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  2. Investing Basics

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  3. Options & Futures

    Why Leveraged Investments Sink

    This powerful tool can have you swimming in money or drowning in underwater equity.
  4. Trading Strategies

    Day Trading Strategies For Beginners

    From picking the right type of stock to setting stop-losses, learn how to trade wisely.
  5. Options & Futures

    Money Management Matters In Futures Trading

    Learn how this overlooked area of trading can help improve your gains.
  6. Options & Futures

    Spreading The Word About Portfolio Margin

    An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
  7. Stock Analysis

    Should You Short These Debt-Laden Stocks?

    These stocks have high debt-to-equity ratios making them prime candidates to short.
  8. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  9. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  10. Investing Basics

    Netflix's Billion-Dollar Content Licensing Budget

    Understand how Netflix selects the TV shows and movies it streams to its subscribers, and learn how it finances those licensing deals.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!