Glossary · Execution
Market Impact
Also: price impact
Published
Market Impact — Market impact is the change in an asset's price caused by the act of trading it, arising both from the liquidity an order consumes and from other participants adjusting their prices once they infer that a large order is being worked. Together with slippage, it is the true cost of moving size.
Temporary and Permanent Impact
Temporary impact is the price pressure while an order is being executed; it fades as market makers replenish the book. Permanent impact is the part that persists because the order revealed information, and other participants updated their view of fair value. A treasury that sells the same size every week, visibly, on the same venue, pays permanent impact on a schedule.
Impact and Fragmentation
Digital assets trade on many venues at once. An order worked on one venue is visible to participants who arbitrage across venues, so the impact spreads quickly. Liquidity providers that hedge across many venues can spread their own footprint thinly, which is one reason a block executed through a request for quote may cost less in total than the same size worked publicly.
Limiting Impact
Three tools reduce impact: trading inside displayed depth in small clips, moving size off-book through a request for quote where the provider carries the position, and matching in institutional dark pools where orders are not displayed. Which tool fits depends on urgency, size relative to depth, and how costly it is for the market to learn the order exists.