regulation · intermediate
Haircut
A haircut is the percentage reduction applied to a security’s value when it is accepted as collateral.
Higher-volatility or less liquid stocks usually attract larger haircuts.
Clearing corporations publish haircut or valuation percentages for margin-eligible securities.
After haircut, a stock pledged at one lakh rupees of market value may provide much less margin.
Haircuts protect the lender against a sudden fall in collateral prices.
Part of the Market Pulse Term of the Day series — factual market vocabulary, not investment advice.