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- Market Impact
Market Impact
Market impact refers to the effect a trader has on the market when they trade an asset. Buying an asset will increase the price and selling an asset will decrease the price. Any executed trades will remove liquidity from the market. Market impact will be most noticeable for large orders and in markets with low liquidity.
Market impact will usually hurt the trader, resulting in slippage. Market impact can be mitigated by dividing an order into several smaller orders, or spreading it across multiple markets. Trading strategies such as VWAP and TWAP are often employed for orders that are expected to have significant market impact.
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