Trading & Markets

Market Impact

The adverse price movement caused by executing an order.

The widely used empirical regularity is the square-root law: impact scales roughly with sqrt(order size / daily volume). Doubling an order raises impact by about 40%, not 100%.

Temporary versus permanent is the distinction that matters. Temporary impact is the cost of demanding immediacy and reverts as the book refills - it can be reduced by trading slower. Permanent impact is the market updating on the information your trade revealed, and it does not revert.

The execution trade-off: trade fast and pay impact, trade slowly and take timing risk.

Full guide

Liquidity and Market Impact

Why a large order costs more than a small one, the square-root law, and what liquidity actually means.

Related terms

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