Risk
Liquidity risk
The risk of not being able to sell when you want to, without accepting a bad price.
How it works
It has two forms: the asset itself is hard to trade, or the market as a whole seizes up. The second is what turns an ordinary decline into a crisis.
The most dangerous version is a mismatch: a fund that promises daily dealing while holding assets that take months to sell. That structure works until enough people ask for their money at once.
Where it misleads people
Funds holding property, small-cap shares or private credit have suspended redemptions in every major stress episode. Daily dealing is a promise about the wrapper, not about what is inside it.
Related terms
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- GatingA fund limiting or suspending withdrawals because it cannot sell holdings fast enough.
- Average daily volumeThe typical number of shares traded per day, usually averaged over the last month or quarter.
- Bid-ask spreadThe gap between the highest price anyone will pay and the lowest price anyone will accept.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.