Illiquid (redirected from Market liquidity)

Illiquid

In the context of corporate finance, the absence of cash flow needed to fulfill financial debts and meet obligations. In the context of investments, describes a thinly traded investment such as a stock or bond that is not easily converted into cash. Illiquid securities have high transactions costs. Often the bid-ask spread is very wide.

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Illiquid

Describing an asset that is difficult to sell because of its expense, lack of interested buyers, or some other reason. Examples of illiquid assets include real estate, stocks with low trading volume, or collectibles. Illiquid assets still have value and, in many cases, very high value but are simply difficult to sell. See also: Liquid.

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illiquid

1. Of or relating to an asset that is difficult to buy or sell in a short period of time without its price being affected. For example, a large block of stock or a small amount of an infrequently traded stock is likely to be difficult to sell without a reduced price being offered to potential buyers. Compare liquid.

2. Of, relating to, or being an investment position in which a low proportion of assets is in cash or near-cash, thereby creating difficulty for the investor who is trying to raise funds for another purpose.

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Illiquid

What Does Illiquid Mean?

The state of a security or another asset when it cannot be sold or exchanged easily for cash without a substantial loss in value. Illiquid assets also cannot be sold quickly because of a lack of ready and willing investors or speculators. The lack of ready buyers also leads to larger spreads between the ask price (from the seller) and the bid price (from a buyer) than would be found in an orderly market with daily trading activity.

Investopedia explains Illiquid

Illiquid assets include houses, cars, antiques, private company interests, and some types of debt instruments. On the other end of the spectrum, most listed securities traded on major exchanges, such as stocks, funds, bonds, and commodities, are very liquid and can be sold instantaneously during regular market hours at the fair market price. Illiquid securities carry higher risks than do liquid ones; this occurs during times of market turmoil when the ratio of buyers to sellers is out of balance. During these times, holders of illiquid securities may find themselves unable to unload them at all or unable to do so without losing a lot of money.

Related Terms:
• Intrinsic Value
• Law of Demand
• Law of Supply
• Liquidity
• Marketable Securities