Definition of Liquidity Risk
What is Liquidity Risk
Liquidity risk is the risk or probability of being unable to sell your investment at a fair market price and get your money out when you want to. The risk occurs in situations where an investor is interested in selling but unable to do so since no other investor in the market wants to buy.
The investment cannot be traded quick enough in the market without impacting the market price. To sell the investment, the party may need to accept a lower price and, in some cases, such as exempt market investments, it may not be possible to sell the investment at all.
Glossary of Terms and Phrases
A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.
We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.