Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Escrow Agreement

What it is:

An escrow agreement is a certificate from an approved bank guaranteeing that an indicated financial security is deposited at that particular bank.

How it works (Example):

John writes a call option for stock in company ABC. When John presents the escrow agreement to the bank, he is considered to have covered the asset. As a result, John will not have to meet margin call requirements at the bank.

Why it Matters:

Escrow agreements offer investors a safety net in the event of margin calls.