liquidity risk


Liquidity risk

The risk that arises from the difficulty of selling an asset in a timely manner. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.

Liquidity Risk

The risk that an individual or firm will have difficulty selling an asset without incurring a loss. That is, there may be a lack of interest in the market for a particular asset, forcing the owner to sell it for less than its actual value. Liquidity risk may be quantified as the difference between an asset's value and the price at which it can likely be sold. It is highest for lightly traded securities and small issues, as well as during a bear market.

liquidity risk

The risk of having difficulty in liquidating an investment position without taking a significant discount from current market value. Liquidity risk can be a significant problem with certain lightly traded securities such as unlisted options and municipal bonds that were part of small issues. Also called marketability risk.