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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.

Notes:

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.

See also: Market Maker

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Haircut

The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction).

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haircut

A deduction in the market value of securities being held by brokerage and investment banking firms as part of net worth for calculating their net capital. The size of a haircut varies with the particular type of security held.