Groundlearn / Glossary / Market liquidity risk
Market liquidity risk
A FRM term, defined in plain English with the distinction examiners test.
What it means
The risk that a position cannot be sold quickly without moving the price against you.
The exam angle
Measured through bid–ask spread, market depth and resilience. Liquidity-adjusted VaR adds the cost of exiting to the price risk.
Where it appears in the syllabus
- Liquidity & Treasury RiskFRM Part II · exam weight 15% · Funding vs market liquidity, LVaR, transfer pricing, IRRBB, LCR and NSFR.
- Market Risk Measurement & ManagementFRM Part II · exam weight 20% · VaR and ES estimation, backtesting, EVT, GARCH, copulas, FRTB.
Related terms
- Liquidity-adjusted VaRVaR extended to include the cost of closing the position — the bid–ask spread and the market impact of exiting at size.
- Bank runA self-fulfilling withdrawal of funding from an institution, where the rational individual choice to withdraw first…
- CollateralAssets pledged to secure an exposure, reducing loss if the counterparty defaults.
- Funding liquidity riskThe risk of being unable to meet obligations as they fall due without incurring unacceptable losses.
- Illiquidity premiumThe extra expected return demanded for holding an asset that cannot be sold quickly at a fair price.
- Initial and variation marginInitial margin is the good-faith deposit required to open a futures position; variation margin is the daily cash…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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