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Finance Glossary

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Call Loan

Definition:

Call loans are super short-term loans that banks give to brokers or brokerage firms. Brokers use the money to offer margins.

Let’s say you set up an account with a broker to buy $100,000 in shares and they offer a 50% margin. You pay $100,000, and the brokerage uses call loans to let you invest another $100,000. The call loan is backed up by the securities in the account, so the loan is pretty low-risk (which means low interest rates). Brokers have strict rules about how much of a margin they give clients, so even if the value of your investments falls, they still have enough dough to pay off the loans and make some bucks.