Market Liquidity Risk

Market liquidity risk refers to the possibility that an asset cannot be quickly sold in the market without significantly lowering its price. This risk arises when there are not enough buyers or sellers at the current market price, making it hard for an investor to convert their asset into cash. In liquidity risk management, it's crucial to ensure that a company can meet its financial obligations without facing severe losses due to the inability to trade its assets efficiently. Proper management helps maintain stability and reduces the potential negative impact on an organization’s financial health.