The percentage by which an asset's market value is reduced for the purpose of calculating capital requirement, margin, and collateral levels, or the difference between the actual market value of a security and the value assessed by the lending side of a transaction.
Notes:
- The term haircut comes from the fact that market makers can trade at such a thin spread.
- 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.
