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Market Impact Meaning

The change in an asset’s price that is directly caused by your own trade. If you buy a small amount, the impact is zero.

If you try to buy $10M of a small-cap token, the "Market Impact" will be massive-you will push the price up as you "eat" through all the available sell orders. Large investors spend a lot of time trying to "Minimize Market Impact." They do this by breaking their large orders into thousands of tiny ones (using Iceberg Orders) or by using OTC Desks to trade privately.

Market impact is a "hidden cost" of trading. If the price is $100 and your buy order pushes the price to $105, your average "Execution Price" is $102.50.

You have effectively lost 2.5% to market impact before the trade even finished. This is why "Liquidity" is so important for large-scale wealth management.

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