What Is A Haircut?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

A haircut is a term referring to price spreads and the market value of assets. Almost all assets have a spread between the buy and sell price and this is one of the meanings of haircut.

The other meaning of the term haircut is how much an asset is reduced in value for calculating collateral levels. This is used as a buffer because there is a risk that the collateral behind an asset will devalue in the market, and the haircut is meant to take this into account.

For example, if a bond is issued at par (100) and then at maturity investors only receive 90 back, they will have taken a haircut of 10.

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Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.