Liquidity risk refers to the possibility that an individual or organization may not be able to quickly buy or sell an asset without significantly affecting its price. This can occur in markets where there are few buyers or sellers, making it difficult to convert assets into cash when needed. For example, if an investor holds a large amount of a specific stock, they may struggle to sell it quickly without lowering the price. This risk is particularly relevant in times of financial stress, where market conditions can change rapidly, impacting the ability to access cash or liquidate investments.