Question of the Week – What is liquidity risk?

The risk series continues this week with a look at liquidity risk.

The liquidity of an investment refers to the ability to sell it for cash. If you cannot sell your investments for a fair price when you need cash, you are exposed to liquidity risk. You may be forced to sell at a lower price than expected due to market conditions or a lack of demand for the investment. In some extreme cases, there may not be any liquidity and you may not be able to sell your investment. This could happen with unlisted securities, such as exempt market securities or CEDIF investments, which have no market place to sell them.