Brokerage Firms

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Brokerage Firms

Published by sam - 27/09/07 - 04:09:37 am

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Many stock brokerage firms will make personal or real state loans to customers who are willing to use the stocks and bonds they own as collateral. Such loans are made at rates only one or two percent-age points higher than the call rate—the relatively low rate that brokers them selves pay to borrow money. (The current call rate. Which fluctuates regularly, can be found in the financial pages of any major newspapers.) As a result, interest on such loans may cost two to three percentage points less than a similarly secured loan obtained from a bank.

Brokerage loans can be risky for the borrower. If stock prices should drop to the point at which the value of your collateral no longer protects the broker against the possibility of your default, you will asked to provide additional collateral, and failure to do this can result in the forced sale of your stock—almost by definition at a time when the market prices are low. If, however, you borrow a sum that represents only a small fraction of the value of your portfolio, a brokerage loan can be extremely economical.

Brokerage Firms

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