Liquidity risk is when a company, individual or bank is unable to meet short term financial demands, without making financial losses. This can happen when most of your assets are tied up in assets that are very illiquid, espcially fixed assets such as houses for individuals, and property plant & equipment or investments in private companies for businesses. For example, if someone had an urgent need for a lot of money, one of this ways to raise this money is to sell away his house. This house may be worth a lot, but it may take a long time to find a buyer who is willing to pay the market price for this house. So to meet his urgent needs, he may end up selling the house at a much lower price. This is an example of illquidity. This could be the opposite for someone else who had assets in cash or shares. He could sell the shares away for their market price and raise the money very quickly, and selling them for what their really worth. You can actually sell anything especially if their cheap enough, but selling away at the correct price in the market is much tougher.