// GLOSSARY -- DEFI
What is Price Impact?
Price impact is the change in a token's market price caused by executing a trade — larger trades relative to available liquidity cause greater price movement.
WHY IT MATTERS
Price impact is what you move the market by trading. On a constant-product AMM, every swap changes the pool ratio and thus the price. A $100 swap on a $10M pool: negligible impact. The same swap on a $10K pool: massive impact.
Price impact is different from slippage — price impact is the mechanical result of your trade's size relative to liquidity. Slippage also includes price movement between submission and execution.
Managing price impact is critical for large traders and agents: split large orders, use aggregators, time trades for high-liquidity periods, and choose deep pools.
FREQUENTLY ASKED QUESTIONS
How to calculate price impact?
On a constant-product AMM: price impact ≈ trade_size / (2 × pool_liquidity). DEX frontends show estimated impact before execution. Always check before large trades.
What's acceptable price impact?
Under 0.1% for large-cap pairs. 0.1-1% for mid-cap. Over 1% suggests the pool is too shallow for your trade size — consider splitting or using an aggregator.
How is price impact different from slippage?
Price impact is deterministic — caused by your trade's size. Slippage is the total difference between quoted and executed price, including price impact plus any market movement during execution.