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. Investopedia Says:
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. Related Terms:
Collateral
Margin
Market Maker
Market Value
Risk-Based Capital Requirement |