illiquid

play

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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illiquidity

play \(ˌ)i(l)-ˌli-ˈkwi-də-tē\ noun

Recent Examples of illiquid from the Web

The ETFS Copper fund has $270 million, and other funds linked to the metal tend to be small and illiquid.

— susanne barton, Bloomberg.com, "More Precious Than Gold? Copper's the Better Inflation Hedge," 27 June 2017
Big insurers tend to hold huge sums of money for many years before claims come due, giving them a chance to get higher yields on illiquid or complicated securities that might be shunned by retail investors.

— sonali basak, Bloomberg.com, "BlackRock Sees Insurers Pouring $300 Billion Into Debt ETFs," 30 May 2017
Morgan Stanley is still waiting for an answer to an extension for $1.9 billion in illiquid holdings.

— alan murray, Fortune, "CEO Daily: Monday, 8th May," 8 May 2017
Researchers found that participants chose to allocate between 39% and 56% of their money to a Commitment Account depending on what type of illiquid condition was placed on it.

— gaby lapera, USA TODAY, "Most Americans don't trust themselves with their own money," 4 May 2017
While some of the dip is by design -- as the European banks try to cut risk and free up capital dedicated to illiquid trading positions -- all four firms fell short of analysts’ trading estimates in the quarter.

— donal griffin, Bloomberg.com, "European Bank Trading Slump Worsens; U.S. Rivals Gain Share," 28 Apr. 2017
The cash advance allows a person whose principal assets are illiquid—in the form of valuable artworks and other collectibles—to quickly tap the equity of those assets.

— daniel grant, WSJ, "Art Auction Houses Offer Cash Advances," 27 Mar. 2017
Finally, there’s his previous hedge fund, Gotham Partners, which ran into trouble when clients redeemed and its illiquid investments could not be sold quickly.

— gretchen morgenson and geraldine fabrikant, New York Times, "Hedge Fund Titan’s Surefire Bet Turns Into a $4 Billion Loss," 19 Mar. 2017
But an examination of the fund identified other pernicious forces: most notably, illiquid, opaque and high-cost investments.

— gretchen morgenson, New York Times, "New York’s Teamsters May Have Their Pensions Cut. What Went Wrong?," 30 Dec. 2016

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.

First Known Use of illiquid

1913

Financial Definition of ILLIQUID

illiquid

adjective

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