Stock Loans
Created | Updated Jan 28, 2002
Stock loans are loans received by individuals, companies, or other legally recognized entities that use shares of stock as collateral for the loan. Loans are typically extended by brokerages, banks, or private financial organizations.
Most stock loans In the United States are actually Margin Loans -- loans which require the borrower to give the lender extra cash or extra stocks if the value of the collateral falls too low. Stock loans operating under margin restrictions began after the great stock market crash in the United States and its after-effects in the 1920's.
An alternative to the stock margin loan that does not involve margin restrictions is referred to as a hedge loan. A hedge lender takes the stocks and, with the borrower's permission, operates hedges -- strategies to protect against price changes using careful short-term buying and selling -- to cut risk. By doing so, the stock loan borrower need not come up with more cash if the stock price falls.
Stock loans, like stock market trading in general, have often been used in financial scams and used to enrich companies and individuals through deceptive practices designed to pump up prices. Financial regulatory agencies worldwide are almost always one step behind this type of fraud.
Most stock loans In the United States are actually Margin Loans -- loans which require the borrower to give the lender extra cash or extra stocks if the value of the collateral falls too low. Stock loans operating under margin restrictions began after the great stock market crash in the United States and its after-effects in the 1920's.
An alternative to the stock margin loan that does not involve margin restrictions is referred to as a hedge loan. A hedge lender takes the stocks and, with the borrower's permission, operates hedges -- strategies to protect against price changes using careful short-term buying and selling -- to cut risk. By doing so, the stock loan borrower need not come up with more cash if the stock price falls.
Stock loans, like stock market trading in general, have often been used in financial scams and used to enrich companies and individuals through deceptive practices designed to pump up prices. Financial regulatory agencies worldwide are almost always one step behind this type of fraud.
