What is liquidity risk?
1 answersQuestion asked ( August 19, 2009 , Shopping / Finance )
What is liquidity risk? I started trading in stocks and my broker spoke about liquidity risk. I dint quite pay attention. Is it the generic risk associated with trading in stocks?
Answers to : liquidity...
Answer
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 profitLiquidity Risk as you rightly pointed out is the inherent risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. This risk is generic to any stock traded, but is highlighted for those stocks which were trading well and have suddenly gone off the grid or have taken a substantial dip due to market conditions. These would specifically be for those transactions and stocks that have large price movements.
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