Knowing how to read an earnings report gives an analyst or investor a bottom line perspective into the finances and profitability of a company. One common example occurs in the primary housing market, where a borrower uses the home he is purchasing as collateral for a mortgage loan. While partial recovery may be possible through the bankruptcy courts, there are no guarantees, the process would undoubtedly take years, and it could be extraordinarily stressful.
Specifically, there are a few things I want you to take away when you are done reading this piece: That is, you and your broker have entered into an arrangement and your shares have been hypothecated. Uh oh!
The sea, hobgoblins, and blankets. For example, if a piece of real estate functions as collateral on a mortgage loan, and the lender pledges the asset to another financial institution in exchange for a loan, if the mortgage lender fails, the second financial institution may make a claim on the real estate.
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Similar situations occur in other collateralized loans, such as a vehicle loan, as well as with the setup of margin accounts to support other trading actions. Hypothecation occurs when a borrower promises the right to an asset as a form of collateral in exchange for funds. Explore the year a word first appeared.
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MF Global's creditors had seized it, including the rehypothecated collateral. I want you to know the definition of hypothecation and the definition of rehypothecation. Facebook Twitter YouTube Instagram. Popular Courses.
Different types of hypothecation agreements are regulated in different ways. US practice in securities trading whereby under certain circumstances a broker may use securities in his or her possession but owned by a customer as collateral to raise a loan to cover a short position.