Definition of Call Money, Call Money Rate,Call Loan and Call Market

Definition of Call Money, Call Loan and Call Market, Call Money Rate

Call Money

Call money is money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.

Brokerages know that they are taking on risk by using funds that can be called at any time, so they typically use call money for transactions that will be resolved quickly. If the bank recalls the funds then the broker can issue a margin call on its clients in order to make the repayment. The call money rate is used as the interest rate on the loans.

Call Loan

A loan provided to a brokerage firm and used to finance margin accounts. The interest rate on a call loan is calculated daily. The resulting interest rate is referred to as the call loan rate.

Call loans use securities as collateral for the loan. It is important to note that a call loan can be canceled at any time.

Call Market

A call market is a type of market in which each transaction takes place at predetermined intervals and where all of the bid and ask orders are aggregated and transacted at once. The exchange determines the market clearing price based on the number of bid and ask orders. A call market is contrasted to an auction market, where orders are filled as soon as a buyer/seller is found for any given order at an agreed upon price.
In a call market, the price is set by the exchange so the market will clear, or almost clear, every time orders are filled. This is in stark contrast to the auction market, where prices are determined by buyers and sellers.

Because the call market groups transactions together, there is a substantial increase in liquidity. Although liquidity is generally considered to be a good quality in any marketplace, sellers may lose some of the liquidity premium, which is can be substantial. 

Call Money Rate

The call money rate is the interest rate on a type of short-term loan that banks give to brokers who in turn lend the money to investors to fund margin accounts. For both brokers and investors, this type of loan does not have a set repayment schedule and must be repaid on demand.

Trading on margin is a risky strategy in which investors make trades with borrowed money. The advantage of margin trading is that investment gains are magnified; the disadvantage is that losses are also magnified. When investors trading on margin experience a decline in equity past a certain level relative to the amount they have borrowed, the brokerage will issue a margin call that requires them to deposit more cash in their account or to sell enough securities to make up the shortfall.