Haircut Margin

Haircut Margin refers to the percentage reduction applied to the market value of a security when it is used as collateral for a loan or a margin position. For instance, if a stock has a 20% haircut, an investor can borrow only 80% of its market value. Haircuts account for the volatility and liquidity risk of the pledged asset—riskier or less liquid assets attract higher haircuts. In India, SEBI and stock exchanges prescribe specific haircut rates for different categories of securities used as collateral in the margin trading system.