Liquidity Risk

In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Liquidity risk arises in situations where a party seeking to trade an asset cannot do so. This typically occurs when nobody can be found in the market to take the other side of a transaction, or where there are prescribed windows which only allow trading on certain dates. Liquidity risk also tends to compound other risks as the ability to sell a security or asset falls if the product issuer is experiencing financial difficulty.