Illiquid

December 17, 2013  |     |     |   0 Comment

An asset is described as illiquid when it cannot be easily or quickly converted to cash. For example, domain names, real estate, or shares in a privately-held business are illiquid assets while shares in a publicly-traded business (stocks) are liquid assets. It takes some time and effort to sell illiquid assets.

For example, stocks can be sold within minutes of placing a sell order with a stock broker while it can take about 6 months to sell a house. This is because there are readily-available buyers and sellers of stocks. As such, the marketplace sets a fair asset price agreed upon by a volume of buyers and sellers in numerous transactions in each asset.

Generally, there’s no defined fair market price in an illiquid asset and therefore buyer and seller price expectations can differ significantly in the asset. This makes it more difficult to sell an illiquid asset than a liquid asset.

Author: 

Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.

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