Liquidity Risk
The possibility that entry, hedging or exit cannot occur near the indicated value.
#Risk mechanism
Liquidity spans distinct surfaces: the reference security, Stock Token venues, any call or replication market, and the settlement asset. Depth in one does not guarantee depth in another.
#Stress conditions
- Reference market closure or halt.
- Thin Stock Token reserves or wide spreads.
- One-sided option demand.
- Large size relative to executable depth.
- Congestion or high transaction cost.
#Control principles
- Separate indicative price from executable size.
- Use slippage and minimum-output bounds.
- Limit notional by the weakest required market.
- Measure exit liquidity independently from entry liquidity.