Finance glossary
Liquidity Risk
Definition
The risk of being unable to sell an asset quickly without a big loss.
Liquidity risk arises when an asset cannot be sold fast enough at a fair price, forcing a discount or trapping the holder. It spikes during crises when buyers vanish. Real estate, small-cap stocks, and certain bonds carry higher liquidity risk than cash or large-caps.
In a sentence
Holding obscure small-caps exposed the fund to liquidity risk when buyers suddenly vanished.
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