Liquidity risks refer to the potential for a company or individual to be unable to pay its debts due to insufficient funds. It can manifest itself in various forms, such as difficulty in meeting short-term obligations or an inability to liquidate assets quickly in order to raise cash. This type of risk is particularly pertinent when it comes to financial institutions and businesses that rely heavily on borrowing and lending money.
Financial Instruments (stocks, bonds, commodities, currencies, derivatives) In order for these entities to remain solvent, they must manage their liquidity levels carefully, ensuring there are adequate resources available if needed.
Liquidity Risks - Financial Instruments (stocks, bonds, commodities, currencies, derivatives)
- High-Frequency Trading
- Day Trading
- Risk Management
To do so, they must monitor their debt levels closely, assess the creditworthiness of borrowers, and take steps to diversify their sources of capital. Failing to do so can put them at risk of defaulting on loans or experiencing a severe cash crunch which could result in bankruptcy.
Liquidity Risks - Financial Instruments (stocks, bonds, commodities, currencies, derivatives)
- Day Trading
- Risk Management
- Index Fund Rebalancing
