illiquid

adjective

il·liq·uid | \ (ˌ)i(l)-ˈlik-wəd

Definition of illiquid

1 : not being cash or readily convertible into cash illiquid holdings

2 : deficient in liquid assets an illiquid bank

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Institutional investors have regulatory restrictions on their illiquid holdings. — The Editorial Board, WSJ, "Elon Musk’s Public Reckoning," 28 Aug. 2018 Even as the world’s 31st-richest person and Tesla’s largest shareholder, Musk would be reliant on outside funding for any buyout since his fortune is highly illiquid. — Tom Metcalf, The Seattle Times, "Elon Musk needs just 61 characters to lift wealth by $900 million," 7 Aug. 2018 The second is technical: The lack of significant contagion is because investors elsewhere regard the Italian moves as overdone, the result of hedge funds and others piling in to sell bonds in a market that became suddenly illiquid. — James Mackintosh, WSJ, "What to Make of Italy’s Astonishing Bond Moves," 30 May 2018 But the market is opaque, unregulated and sometimes extremely illiquid. — Frederik Balfour, Bloomberg.com, "Top Collectors Reveal the Secrets of How to Invest in Art," 7 May 2018 Foreign cash and cash equivalents are subject to a higher one-time tax rate than illiquid assets are. — Richard Rubin, WSJ, "Treasury Works to Address Concerns Over Taxes on Overseas Earnings," 4 June 2018 One difference between Silicon Valley and other sectors, though, is that some of the wealth in tech is in illiquid startup stock. — Theodore Schleifer, Recode, "There are 143 tech billionaires around the world, and half of them live in Silicon Valley," 19 May 2018 The new rules set a one-time rate of 15.5% on cash and 8% on non-cash or illiquid assets. — Fortune, "The Trump Administration Changed Taxes on Cash Held Overseas. Now Firms Have Stopped Reporting It," 11 May 2018 Level 3 is the most illiquid category of financial instruments and banks value the holdings using their own models based on historical data and risk assumptions. — Bloomberg.com, "Draghi Turns Spotlight on Riskiest Assets at European Banks," 9 Mar. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'illiquid.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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1 Dec 2018

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The first known use of illiquid was in 1913

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illiquid

adjective

Financial Definition of illiquid

What It Is

Illiquid describes an asset or security that cannot be sold quickly due to a shortage of interested buyers or a lack of an established trading market. Illiquid assets cannot be easily converted into cash without potential for losing a significant percentage of their value.

How It Works

Examples of illiquid assets include penny stocks, microcap stocks and nanocap stocks; ownership interests in private companies; collectibles like art and antiques; partnership shares in hedge funds and alternative investments; certain types of options, futures and forward contracts; and some types of bonds and debt instruments. Because these assets change hands infrequently, it is difficult for investors to agree on a fair market value. This creates large spreads between the seller’s asking price and the buyer’s offer price.

Liquid markets can become illiquid very quickly. For example, up until 2008, it was not necessarily difficult for a home seller to find a willing buyer, But after the credit crisis began that year, the housing market in much of the U.S. became more and more illiquid.

The most liquid markets are those that continuously have high volumes of buying and selling -- for example, large cap stocks, currencies, treasuries and commodities. Though the balance of buyers and sellers is always shifting, you are almost always guaranteed to find a buyer for these kinds of assets.

Why It Matters

Illiquid assets are considered more risky than liquid assets. During periods of market volatility, when there are fewer buyers than sellers, illiquid assets may become even more difficult to sell. In fact, a seller may find no willing buyers. In these instances, holders of these assets may be required to discount their asking price to attract potential buyers, and in the worst cases may find that their assets have zero value at certain points in time.

Check out similar or related terms: Liquidity Risk, Liquid, Penny Stock

To learn more about illiquid assets, check out: 4 Penny Stock Myths Used to Target the Next Sucker and The Lowdown on Penny Stocks.

Source: Investing Answers