What is the risk of liquidity?
The risk of liquidity in the financial markets is a lack of trading in a particular security or asset, which could make the investor a more difficult transaction involving this security or asset if necessary. It also refers to the speed at which the Company can transfer assets, including real estate, deposit certificates and investments in shares and bonds. Without access to proper liquidity, investors, money and corporation managers can become a limited money and experience serious failures, especially at the time of market decline. The offer represents what the buyers are willing to pay, and the price of the application means the latest price at which the seller was willing to unload the asset. The range is the difference between offer and request. The expansion of the expansion offers is a greater difference between buyers and sellers, indicating a reduction in liquidity.
on the markets of shares and bonds is the liquidity of the OblnoThe risks of the possibility that there will be only one party, either the buyer or the seller, committed to the trade. For example, if the trader is trying to interpret safety, but no investor is interested on the other side of this trade, the trader risk losing profits or worse, experiencing a loss. The risk of liquidity is most prevailing in sparsely traded securities, as there is a small purchase and sales activities in these assets.
Shares liquidity also determines volatility or unbalanced prices in this security. Wide -traded stocks are considered a liquid investment. They resist large trading trading or blocking trades initiated by institutional investors without demonstrating too much volatility. However, three -year -old stocks are a more vigorous investment. These shares will be more volatility if there is a trade in institutional size in this security.
Individual investors may be for a living SPOlét on liquidity. For example, if the retirement portfolio is 100 percent of shares, it will depend on the sale of these shares to generate cash flows. The risk of liquidity is that the financial markets experience a decline when the time to sell securities comes, and the investor remains small or no access to cash.
Fund administrators, including Hedge fund managers, often trade with highly complex and sometimes illicit assets and are therefore at risk of liquidity. For this reason, hedging funds often require investors to agree to the locking period, which means that they must commit capital to the fund for one year or more before the selection requests. The increase in download requests can serve as a type of "running on the bank" for a hedge fund, and if the manager is unable to dispose of assets, he can be forced to close.