Under FRTB, the term liquidity horizon represents "the time required to sell a financial instrument or hedge all its material risks, in a stressed market, without materially affecting market prices."

Things to Remember

• Liquidity risk is the risk that an asset cannot be sold on short notice without incurring a loss
• Liquidity horizons are important for determining the liquidity risk of a financial instrument
• FRTB (Fundamental Review of the Trading Book) is a set of global regulations developed by the Basel Committee on Banking Supervision to address shortcomings in the current market risk framework
• Market liquidity refers to the ability to buy or sell an asset without causing a significant change in its price