CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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What is liquidity at risk?

Liquidity at risk

Liquidity at risk is a quantitative measure of financial risk. It was not a very well known theory until the financial crisis of 2007-2008. Liquidity risk is marked in two groups – market liquidity risk (asset or product risk) and funding liquidity risk (cash flow risk).

Where have you heard about liquidity at risk?

The global financial crisis highlighted the risks associated with liquidity. Funding liquidity risk is the main corporate concern as bills, taxes and funding of liabilities needs to be taken into consideration. Market Liquidity risk is the inability to get out of a tricky position with your assets, for example in real estate.

What you need to know about liquidity at risk.

In general funding, liquidity risk tends to be seen as a credit risk, which means there would be a inability to fund liabilities. A market liquidity risk is a market risk due to the inability or difficulty in the selling of assets, which in turn could drive down the market price. Statistical measures for liquidity at risk are not built into the models of financial risk. The models for statistic liquidity risk do not provide absolute certainty in terms of reliability of lower limits for future liquidity. The safest theory is the extreme value theory.

Find out more about liquidity at risk.

To better understand liquidity at risk, see our page on financial risk.

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