Liquidity Gap

DEFINITION of 'Liquidity Gap'

The difference between a firm's assets and a firm's liabilities, caused by said assets and liabilities not sharing the same properties. This gap can be positive or negative, depending on if the firm has more assets than liabilities or vice versa.

BREAKING DOWN 'Liquidity Gap'

For banks, the liquidity gap can change over the course of the day as deposits and withdrawals are made. This means that the liquidity gap is more of a quick snapshot of a firm's risk, rather than a figure that can be worked over for a long period of time. To compare periods of time banks, calculate the marginal gap, which is the difference between gaps of different periods.

RELATED TERMS
  1. Interest Rate Gap

    The difference between fixed rate liabilities and fixed rate ...
  2. Dynamic Gap

    Refers to asset and liability risk management at financial institutions. ...
  3. Common Gap

    A price gap found on a price chart for an asset. These gaps are ...
  4. Static Gap

    A measure of exposure or sensitivity to interest rates. Static ...
  5. Gapping

    In general, a trading strategy in which the participant borrows ...
  6. Gap

    A break between prices on a chart that occurs when the price ...
Related Articles
  1. Forex

    Gaps

    Those who study the underlying factors behind a gap and correctly identify its type can often trade with a high probability of success.
  2. Forex Education

    Playing The Gap

    Learn how you can earn money by analyzing the disruptions in normal price patterns.
  3. Trading Strategies

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  4. Charts & Patterns

    Analyzing Chart Patterns: Gaps

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com A gap in a chart is essentially an empty space between one trading period and the previous trading period. They usually ...
  5. Trading Strategies

    Gap Strategies To Try For Intraday Trades

    Many traders lack effective strategies to manage gaps, whether they pop up on open positions or mark the first play of the day. These strategies may help.
  6. Investing

    What's a Liability?

    A liability is a debt. It is an obligation that arises during the course of business and represents a third-party claim on the company's assets. A liability can arise in a number of different ...
  7. Professionals

    Current Liability Basics

    CFA Level 1 - Current Liability Basics. Learn the basic types of liabilities, including definitions for current and long-term liabilities, warranties, taxes and vacation-pay.
  8. Investing News

    Should Investors Squeeze Into The Gap?

    The Gap is closing stores and conducting layoffs. Will investor panic lead to opportunity?
  9. Trading Strategies

    Analyzing The Market With Trend Mirrors

    Past price action can exert a powerful influence on current rallies and selloffs.
  10. Professionals

    Personal Financial Statements

    Personal Financial Statements
RELATED FAQS
  1. How are Sanku (Three Gaps) patterns interpreted by analysts and traders?

    Find out how analysts and traders interpret a Sanku, or three gaps, pattern located within a bar chart or Japanese candlestick ... Read Answer >>
  2. What are the main differences between a Runaway Gap and a Exhaustion Gap?

    Discover the primary differences between runaway and exhaustion gaps, and see why gap differentiation depends on subsequent ... Read Answer >>
  3. What are the main differences between Exhaustion Gaps and Breakaway Gaps?

    Read about the primary differences between two types of price chart gaps – breakaway and exhaustion – and how traders react ... Read Answer >>
  4. How are Runaway Gap patterns interpreted by analysts and traders?

    Find out what runaway gaps mean in a price chart and how traders and technical analysts interpret them differently than other ... Read Answer >>
  5. How are Exhaustion Gap patterns interpreted by analysts and traders?

    Learn how to spot and interpret exhaustion gap patterns like traders and analysts do, and see why these patterns are considered ... Read Answer >>
  6. What is the difference between an expense and a liability?

    Learn what liabilities and expenses are, which financial statements they are listed on, and the differences between liabilities ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center