1. What is Price Impact?

Definition: Price impact measures how much a trade affects the market price of an asset, expressed as currency per unit traded.

Purpose: It helps traders understand the market liquidity and potential cost of executing large orders.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( PI \) — Price Impact (USD/unit)
• \( \Delta P \) — Price change caused by the trade (USD)
• \( V \) — Volume traded (units)

Explanation: The price change is divided by the trade volume to determine the impact per unit traded.

3. Importance of Price Impact

Details: Understanding price impact helps traders minimize market impact costs, especially when executing large orders.

4. Using the Calculator

Tips: Enter the price change in USD and the volume traded in units. Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What does a high price impact indicate?
A: High price impact suggests low market liquidity - large trades significantly move the market price.

Q2: How can I reduce price impact?
A: Split large orders into smaller chunks, use limit orders, or trade during high liquidity periods.

Q3: Is price impact the same for buys and sells?
A: Not always - markets may react differently to large buy vs. sell orders depending on market conditions.

Q4: What's a typical price impact value?
A: This varies by asset - liquid stocks might have impacts under $0.001/share, while illiquid assets could be much higher.

Q5: Does this include all trading costs?
A: No, this only calculates market impact. Consider commissions, spreads, and other fees for total trading costs.