What is an Escrow Agreement?

An escrow agreement is a certificate from an approved bank guaranteeing that an indicated financial security is deposited at that particular bank.

How Does an Escrow Agreement Work?

John writes a call option for stock in company ABC. When John presents the escrow agreement to the bank, he is considered to have covered the asset. As a result, John will not have to meet margin call requirements at the bank.

Why Does an Escrow Agreement Matter?

Escrow agreements offer investors a safety net in the event of margin calls.