Collateral
Collateral is an asset a borrower pledges to a lender, which the lender can take or sell if the loan isn't repaid.
A house secures a mortgage; stocks secure a margin loan. Lenders usually lend less than the collateral's value to leave a cushion.
Related terms
- Margin: Buying on margin means borrowing money from your broker to buy more stock than your cash alone allows, using your investments as collateral.
- Short selling: Short selling is borrowing shares, selling them, and buying them back later, to profit if the price falls.
- Interest rate: An interest rate is the price of borrowing money, stated as a percentage of the loan per year.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.