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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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