ILL- liquid means which do not flow able easily in the market. In the share market ILL- Liquid shares refers to those assets or securities which are not easily convertible into cash. There is no willing investor who will invest in ILL-liquid shares or purchase it; moreover, a company may be considered illiquid, if it is incapable to get the essential cash to encounter debt obligations.
Breaking Down of these shares
Because of the shortage of willing buyers for the assets, many differences will occur in asking price which is fixed by the seller and in bidding price, which is paid by the buyer and this would be found in the orderly market. These will result to cause a huge loss for ILL-liquid asset holder especially when the investor is willing to sell that asset. We can also understand it like- a company who not having the cash flows for the necessary payments related with debts however it doesn’t mean that a particular company is without assets. For example, Real estate assets cannot be sold easily when required. ILL-liquid assets cannot be sold as a core business and it includes properties that are owned by any company that is not a part of the product for sell.
Ill-liquidity and Risk
By the name itself, we can understand that ILL-liquid assets are riskier than liquid assets. This situation occurs when a buyers and sellers ratio will be out of balance. In the situation of market instability, when the number of buyers is less than a number of sellers, in this case, it is more difficult to sell an ILL-liquid asset, So as a result sellers have to discount their asset price to attract potential buyers.