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Definition of '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.
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Investopedia 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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