Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Broker Loan Rate

What it is:

The broker loan rate is the interest rate charged on the broker loans that brokerage houses use to fund their clients' margin trading accounts.

How it works (Example):

When banks or other lenders provide brokerage houses with broker loans loans to help cover their clients' margin accounts, the interest rate they charge is called the broker loan rate. Also known as a call loan rate, the broker loan rate fluctuates and compounds daily until the loan is repaid or called by the bank.

Why it Matters:

The fluctuating nature of broker loan rates their daily compounding makes broker loans rather risky. Should the bank call the associated loan, the borrowing brokerage house is obligated to pay the loan immediately, whether or not its clients' margin accounts have sufficient cash to cover the repayment. If they don't, then the brokerage house possibly will force its clients to sell their securities in order to obtain enough cash to repay the loan.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...