illiquid

adjective il·liq·uid \ (ˌ)i(l)-ˈlik-wəd \

Updated on: 8 Apr 2018

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

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
Even when a company is illiquid or insolvent, ownership can have residual value, if only on account of potential legal claims.

— philip hamburger, WSJ, "The Raid on AIG’s Equity Was Illegal," 8 Mar. 2018
One lesson from the last crisis was that even supposedly liquid, high-grade assets can become illiquid when investors panic, markets lock up and prices fall.

— the editorial board, WSJ, "Big Bank Custody Fight," 7 Mar. 2018
About half was tied up in illiquid investments such as local firms and factories.

— The Economist, "Capital is on its way to America, but for bad reasons," 1 Mar. 2018
Bank loans are illiquid and slow to settle, while the ETFs that own them are immediately redeemable, a liquidity crisis in the making.

— daniel j. arbess, Fortune, "Commentary: The Economy Looks Good Today, But the Next Debt Crisis Is on the Horizon," 28 Feb. 2018
Banks are ramping up a business that was popular before the financial crisis—offering investors ways to lever up sometimes illiquid and complex investments to amplify their returns.

— christopher whittall, WSJ, "Banks to Funds: Have Some Leverage With That Deal," 17 Dec. 2017
Corporate tax cuts The new tax bill cuts the corporate tax rate from 35 percent to 21 percent while taxing foreign earnings at lower rates of 15.5 percent on liquid assets and 8 percent on illiquid assets.

— benjy sarlin, NBC News, "Key features of the Republicans’ final tax bill," 16 Dec. 2017
The bill increased the tax rate for businesses that want to bring back money from overseas to 8 percent for illiquid assets and 15.5% liquid assets.

— lauren fox and phil mattingly, CNN, "Republicans release their final tax bill ahead of key vote next week," 15 Dec. 2017

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