Liquidity Risk

Liquidity Risk - Liquidity Risk generally varies over time and across markets, and currently we are experiencing extreme market liquidity risk. The most excessive form of market liquidity risk is that dealers are shutting down, no bids, which is currently happening in a number of markets such as those for certain asset-backed securities and convertible bonds. We are also encountering intense funding liquidity risk since banks are short on capital, so they need to scale back their trading that requires capital, and also scale back the amount of capital they lend to other traders such as hedge funds, now are facing higher margins.