A haircut is a lower than market value of an asset when it is used as collateral for a loan.
The size of the haircut largely depends on the risk of the underlying asset. Riskier assets get bigger haircuts.
A reduction in the value of the borrower’s assets is carried out to ensure that the lender is adequately secured by collateral in the event of a decline in the value of assets.
Haircut and margin refer to the same concept of an arbitrary reduction in the value of an asset to reduce risk, although they are expressed differently.
Haircut also refers to tight or haircut-like spreads that market makers can create or have access to.
An acceleration clause or covenant is a contractual provision that allows the lender to require the borrower to repay the entire outstanding loan if certain requirements are not met.
Arbitrageurs are investors who exploit market inefficiencies of any kind. They are necessary to ensure that inefficiencies between markets are smoothed out or kept to a minimum.
A beneficial owner is a person who enjoys the benefits of ownership, despite the fact that the ownership of the property is registered in a different name.
Lump sum loans are typically used to reduce monthly payments to interest only payments over the life of the loan, but eventually a large final principal payment falls due.
Capitulation occurs when a significant proportion of investors give in to fear and sell within a short period of time, resulting in a sharp drop in the price of a security or market against a backdrop of high trading volume.
A central counterparty clearing house (CCP) is an organization, usually run by a large bank, that exists in European countries to facilitate the trading of derivatives and equities.