Calculate Haircut in Stocks and share trading – Haircut is nothing but the amount that is deducted by the broker when broker is giving you margin on your stocks which is kept as collateral for margin trading. For example, let’s say you have 1000 shares of Infosys and you want to trade but don’t have enough capital. In such circumstances, you can pledge these shares and unlock 70% of the value and use it to trade.
The broker then takes custody of your shares but deducts a percentage amount as per the the exchange norms and provides the necessary amount to enable him to trade.
A Haircut in Stocks is the difference between the market value of the stocks collateral and the margin that the lender (stock broker like Angel broking or Sharekhan) gives to you in order to trade in stock market. It is generally expressed in terms of percentage. While giving margin to trade, the broker firm keeps in mind the volatility related to the stocks pledged. Thus, the amount that is sanctioned is always lower than that of the stocks pledged to keep a cushion against market volatility and subsequently loses.
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Important for calculating Haircut in Stocks : Be careful in trading during delivery, verify the withdrawal amount in your trading account before purchasing a new lot of shares. Many a time it happens, purchaser sell the shares and buy new stocks immediately, under impression that he would receive the money on the very same day. Fund for the sale of the shares , though credited in a day to the trading account but the amount can’t be withdrawn on the same day. In such cases haircut will be applicable.