Price impact
Quantitative Finance glossary · Market Microstructure & Statistical Arbitrage
Definition
The adverse price movement caused by the execution of a large order.
Price impact in plain English
Imagine trying to buy every ticket to a small concert at once — as you gobble them up, the sellers notice the rush and raise the price, so the later tickets cost you more than the first. Price impact is that same effect in markets: when you place a really big order, you eat through all the cheap offers and push the price against yourself, so the average price you actually get is worse than the price you first saw on screen. It matters because for large traders this hidden cost can dwarf the visible commission, and it's why big funds slice one giant order into many small ones spread over time. In short, the market 'pushes back' when you shove it hard.
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