What impact does a high liquidity risk have on an investor?

A high liquidity risk is characterized by the difficulty of quickly buying or selling an asset without significantly affecting its price. When liquidity risk is high, it often means that there are fewer participants in the market or that the asset itself is not traded frequently. As a result, if an investor needs to exit a position rapidly, they may struggle to find a buyer or may have to sell at a reduced price, leading to a potential loss.

This situation underscores the essence of liquidity in investing—having enough market participants to ensure that trades can occur swiftly and without drastic price changes. Thus, a high liquidity risk translates into challenges in executing trades efficiently, as investors may face longer wait times or unfavorable pricing, especially in volatile conditions or within markets dominated by illiquid assets.

The other options imply features associated with low liquidity risk, such as ease of trading and guaranteed returns, which do not apply when liquidity risk is high.