What is a 'Federal Call'

Investors will receive a federal call when their margin account lacks sufficient equity to meet the initial margin requirement for new, or initial, purchases.

BREAKING DOWN 'Federal Call'

A federal call, (i.e., a Regulation T - Reg T call) is an initial margin call that is only issued as a result of an opening transaction. Under Federal Reserve Board Regulation T, brokers can lend an investor up to 50% of the total purchase price of a stock for new, or initial, purchases. This is called initial margin. If an investor does not already have cash or other equity in the account to cover their share of the purchase price, they will receive a federal (initial) margin call from their broker requiring them to deposit the other 50% of the purchase price.

How to Satisfy a Federal Call

Investors can satisfy a federal call by depositing cash in the amount of the call or depositing marginable securities valued at two times the amount of the call by trade date plus four business days. When an investor does not meet a margin call by its due date, brokers can force the sale of securities in the account to cover the margin deficiency. Although most brokers will attempt to notify their customers of margin calls, they are not required to do so and can choose what securities are sold to satisfy a call without an investor's consent. When shares are liquidated to meet a federal call, whether by an investor or their broker, the account may be restricted from margin borrowing for a period of time or revoked from margin privileges altogether. Ideally, investors should cover a federal call as soon as possible to retain control over which securities are sold to satisfy the call and avoid repeated violations that can result in removal of their margin privileges.

Brokerage firms have the right to set their own margin requirements, referred to as house requirements, so long as they are higher than Regulation T margin requirements. Investors should carefully examine their broker’s margin account agreement to review important risk disclosure information, house requirements, and margin interest rates.

Purpose of a Federal Call

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

  1. Margin Call

    A margin call is a broker's demand of an investor who is using ...
  2. Margin Account

    A margin account is a brokerage account in which the broker lends ...
  3. Buying On Margin

    Buying on margin is the purchase of an asset by paying the margin ...
  4. Minimum Margin

    Minimum margin is the initial amount required to be deposited ...
  5. Regulation T - Reg T

    Regulation T is a collection of provisions that govern investors' ...
  6. House Maintenance Requirement

    The house maintenance requirement is the minimum margin account ...
Related Articles
  1. Trading

    A Guide to Day Trading on Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  2. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  3. Retirement

    Write Covered Calls To Increase Your IRA Income

    Covered calls may require more attention than bonds or mutual funds, but the payoffs can be worth the trouble.
  4. Investing

    Picking your first broker

    If you're a rookie investor, choosing a broker may be your first big investment decision. Learn more on whether you should you go with a full-service broker or a discount broker.
  5. Trading

    Is your forex broker a scam?

    While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.
  1. 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 >>
  2. How much can I borrow with a margin account?

    Understand the basics of margin accounts and buying on margin, including what amount investors can typically borrow for purchases ... Read Answer >>
  3. What is a margin account?

    A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities. Read Answer >>
  4. What Happens If I Cannot Pay a Margin Call?

    If an investor is unable to meet minimum margin, the broker may liquidate their securities. Read Answer >>
  5. How does margin trading in the forex market work?

    A margin account, used to invest in equities with the leverage of borrowed funds, is intended to increase the possible return ... Read Answer >>
Trading Center