liquidity risk investment & finance definition

A risk that comes from not being able to sell an asset quickly. Some assets that come with a potential liquidity risk include real estate, cars, limited partnerships, or an ownership interest in a small business. These items may be hard to sell if: 1) there is an inefficient secondary market, 2) the asset is not highly sought after, or 3) the economy is sluggish and therefore potential buyers are cautious. In contrast, investments that don’t have liquidity risks include stocks of publicly traded companies, mutual fund shares, or futures or options contracts that are traded on an exchange.