Definitions for "liquidity risk"
The risk that arises from the difficulty of selling an asset. An investment...
The risk that an issue cannot be sold at or near its market value. The size of the spread between the bid price and ask price quoted by a dealer is the primary measure of liquidity. The wider the dealer's spread, the greater the liquidity risk.
The risk that a financial market entity will not be able to find a price (or a price within a reasonable tolerance in terms of the deviation from prevailing or expected prices) for one or more of its financial contracts in the secondary market. Consider the case of a counterparty who buys a complex option on European interest rates. He is exposed to liquidity risk because of the possibility that he cannot find anyone to make him a price in the secondary market and because of the possibility that the price he obtains is very much against him and the theoretical price for the product.