In finance, a haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral.[1] The size of the haircut reflects the perceived risk associated with holding the asset. However, the lender has a lien for the entirety of the asset.
For example, United States Treasury bills, which are seen as fairly safe, might have a haircut of 1%, while for stock options, which are seen as highly risky, the haircut might be as high as 30%. In other words, a $1000 treasury bill will be accepted as collateral for a $990 loan, while a $1000 stock option might only allow a $700 loan.
Lower haircuts allow for more leverage. Haircut has an important role on many kinds of trades, for example for Repo or Reverse Repo.
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History [link]
Haircuts have been used for almost 200 years in American commercial finance.[citation needed]
ECB use of haircuts [link]
The European Central Bank applies a haircut to all securities offered as collateral. The size of the haircut depends on the riskiness and liquidity of the security offered as collateral.[2]
LTCM and haircut fees [link]
The speculative hedge fund Long Term Capital Management (LTCM) saw spectacular losses and required massive bail outs in 1998. Prior to that it was able to obtain practically next-to-zero haircuts as its trades were considered safe by its lenders. This was likely due to LTCM's clout and the fact that no counterparty had a total picture of the extent of its complex and highly leveraged operations.[3]
As used for exchange-traded products [link]
When used in the context of exchange traded products such as stocks, options, or futures, haircut is used interchangeably with the term margin. It is the amount of capital required by a broker to maintain the positions currently in a trading account. If haircut exceeds the account's capital, the broker can either require additional capital (e.g., margin call), or liquidate positions until the haircut no longer exceeds available capital.
References [link]
- ^ What Does Haircut Mean?
- ^ ECB Risk control framework
- ^ Jorion, P. (1999), "Risk Management Lessons from Long-Term Capital Management"
External links [link]
https://wn.com/Haircut_(finance)
Dan.
Dan. may mean:
- for members of religious orders, e.g. "Pray thank Dan Pope who told it me." —Matthew Prior, Alma, (1717)
- for distinguished men, knights, scholars, poets, deities, etc., e.g. "Dan Cupid", "Dan Chaucer"
Dan
Dan is an old Scandinavian given name with disputed meaning. Dan is also a Hebrew given name, after Dan, the fifth son of Jacob with Bilhah and founder of the Israelite Tribe of Dan. It is also a given name or a nickname for people named Daniel.
Dan, or the acronym DAN may refer to the following:
People
People with the surname
Places
Danú
Danú is an Irish traditional music band.
The founding members of Danú (Donnchadh Gough, Dónal Clancy, Daire Bracken, and Benny McCarthy) met in Waterford in Ireland in 1994, and consolidated as a band after performing in the Festival Interceltique de Lorient in 1995.
Their second album, Think Before You Think (2000) was voted Best Overall Traditional Act by Dublin's magazine Irish Music. They are the only band to have been voted Best Traditional Group twice in the BBC Radio 2 Folk Awards, in 2001 and again in 2004 when their version of Tommy Sands's "County Down" also won Best Original Song.
Members
Benny McCarthy is a founding member of Danú; he manages and performs with the band and plays button accordion and melodeon. Benny won the All Ireland Oireachtas in 1994 on both button accordion and melodeon. He is the driving force of Danú and is a key member of several other bands including Raw Bar Collective, The Tin Sandwich Band and Rattle The Boards. He is also one of the leading directors with Whobeganit Theatre Company who created the show Mag Mell in 2012-13.
