What is Haircut?
1. The difference between prices at which a market maker can buy and sell a security.
2. The percentage by which an asset’s market value is reduced for the purpose of calculating capital requirement, margin and collateral levels. Read more for examples and further explanation including related video clips and also comments
Example explains Haircut
1. The term haircut comes from the fact that market makers can trade at such a thin spread.
2. When they are used as collateral, securities will generally be devalued since a cushion is required by the lending parties in case the market value falls.
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