Federal Call
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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. |
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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. |
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