Liquidity is a critical force behind market price distortions (and related trading opportunities). First, the cost of trading in and out of a contract gives rise to a liquidity premium. Second, the risk that transaction costs will rise when market conditions necessitate trading commands a separate liquidity risk premium. Third, actual changes in liquidity can precipitate large price changes without any fundamental value consideration. Finally, low liquidity is conducive to ‘run equilibria`, where bids or offers of some institutional investors turn into pricing signals for others, giving rise to self-reinforcing dynamics with feedback loops and margin calls. Examples for liquidity-driven price distortions in the past include breakdowns of covered interest parity across currencies, bond market ‘tantrums’, and ‘fire sales’ in emerging local-currency markets.