Market Impact

Market impact refers to the effect that a large trade or series of trades can have on the price of a security or asset. Large trades can drive up or push down the price of an asset due to changes in supply and demand. Market impact is a key consideration for institutional investors and traders executing large orders, as the impact can increase transaction costs and affect profitability. Minimizing market impact often involves breaking up large orders into smaller trades.

Example

A hedge fund places a large buy order for a stock, causing the price to rise as demand increases, reflecting the market impact of the trade.