In illiquid markets, liquidity is often described as a function of volume: how many trades occurred, how much paper changed hands, how active the market appears. That framing works in public markets, where continuous trading and standardized assets make volume a reasonable proxy. In private credit and loan trading, it breaks down almost completely.
What matters is not how many people are present, but how many are prepared to act.
A market can look busy and still be effectively frozen. Dozens of buyers reviewing a deal, multiple sellers signaling openness, prices circulating in spreadsheets – and yet nothing closes. This is not a pricing failure and not a lack of interest. It is a lack of commitment density.
In illiquid markets, liquidity emerges only when a sufficient number of participants are willing to cross the line from evaluation to execution within a bounded time frame. Without that overlap, activity becomes noise.
One of the defining characteristics of private credit is that participation is cheap, but execution is expensive. Reviewing a tape, asking for data, floating a price indication – all of this carries low cost and low consequence. Actually committing capital, allocating balance sheet, securing approvals, and standing behind a bid carries real friction. As a result, markets accumulate a large surface layer of engagement that never converts into transactions.
This creates a structural illusion. Sellers believe there is demand because many parties are “looking.” Buyers believe supply is plentiful because many assets are “available.” In reality, very few participants on either side are synchronized in readiness.
True liquidity, in this context, is the overlap between willingness and timing.
Markets that fail to distinguish between exploratory activity and executable interest tend to misallocate attention. They amplify the loudest signals instead of the most reliable ones. A buyer who asks for extensive data but delays internal approval is treated the same as one who already has mandate. A seller who hints at flexibility but avoids setting parameters is treated the same as one prepared to transact. Over time, this degrades trust and slows the entire market.
Modern market design in illiquid assets has to solve for this mismatch. Not by forcing disclosure or extracting promises, but by observing behavior under constraint. Who responds when timelines tighten. Who engages when optionality narrows. Who maintains consistency as friction increases.
Liquidity improves not when more participants show up, but when the market makes commitment visible.
When participants can infer, even imperfectly, who is actually prepared to move, coordination costs fall. Negotiations compress. Dead ends are identified earlier. Capital moves faster, even if total volume remains modest.
This is why the most effective private markets feel quieter than expected. Fewer conversations, fewer false starts, fewer recycled processes – but a higher close rate. Activity is filtered before it becomes public, and only signals that survive friction propagate.
Illiquid markets don’t need more noise. They need better signal-to-commitment alignment.
The next evolution of private credit trading will not be about attracting more participants. It will be about structuring markets so that readiness to execute is legible – and rewarded.
