Skip to content
GetProfitable
Search
Dictionary

Price impact

How far your own order moves the price, measured against the price before you traded. On an AMM it is a function of trade size relative to pool depth.

Price impact is not a fee and it is not slippage in the classic sense; it is the mechanical consequence of the pricing curve. It is deterministic on an AMM: given the reserves, you can calculate exactly what a given size will cost before sending anything.

Interfaces display it as a percentage and often warn above 3% to 5%. Treat a large number as information about the market, not merely a cost. If a $20,000 order moves the price 15%, the asset has almost no depth, and the exit will be at least as bad as the entry.

Splitting the order does not help on a single pool, because the curve is the curve; only routing across venues does. A dex-aggregator reduces impact by splitting across pools, and for size the honest answer is often that the position is simply too big for the liquidity available.

Related: constant-product-formula, slippage-tolerance, market-depth-crypto, dex-aggregator

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.

Educational only, not advice. Spotted an error? Post in Site Feedback.