Market impact
Market impact is the change in price caused by one's own trading: an order that consumes resting liquidity moves the best price, and larger orders relative to the depth available move it further. Part of the move usually fades as the book refills (temporary impact) and part persists when the trade carried information (permanent impact).
Senzoukria · Glossary · Updated September 2026
How an order moves price
A market buy takes the offers at the best ask. If it is larger than the size there, it takes the next level too, and the best ask moves up. After the trade, the mid-price has shifted even if nobody else changed their mind. That mechanical shift is the immediate impact. What happens next separates two components: if new offers arrive and the price drifts back, the impact was temporary; if the market stays at the new price because the trade was informative or because others react to it, the impact was permanent.
A worked example
The book offers 30 contracts at 5,000.00, 40 at 5,000.25 and 60 at 5,000.50, with the best bid at 4,999.75. A market buy of 100 contracts takes 30 at 5,000.00, 40 at 5,000.25 and 30 at 5,000.50. Its average price is 5,000.25. The best ask is now 5,000.50 with 30 contracts left, so the mid-price has moved from 4,999.875 to 5,000.125, one full tick, and the buyer paid on average two ticks above the old mid.
| Level | Offered before | Taken | Left |
|---|---|---|---|
| 5,000.00 | 30 | 30 | 0 |
| 5,000.25 | 40 | 40 | 0 |
| 5,000.50 | 60 | 30 | 30 |
What drives it
- Size relative to displayed depth: the same order is negligible in a deep book and several ticks in a thin one.
- Speed: an order sent at once consumes the book; the same size spread over time lets it refill between pieces.
- Information: trades that predict the next move have impact that does not revert, which is why liquidity providers widen their quotes against them.
- Empirical studies of large orders, such as Almgren and colleagues (2005), report impact growing roughly with the square root of the order's size rather than in proportion to it.
In Senzoukria
The DOM ladder and the heatmap show impact directly: the levels an order consumes, and whether the book refills afterwards. The Kyle Lambda (price impact) indicator in the Quantitative group estimates, over a window of bars, how much the close moves per unit of net signed volume, which is an average impact coefficient for the market rather than the cost of any one order. Effort vs Result, in the Tape & flow group, gives the bar-level counterpart: how many contracts it took to move one tick.
Common mistakes
- Confusing impact with slippage. Slippage is the cost against a reference price; impact is the move you caused, which also affects later fills.
- Assuming a single contract has no impact at all. In a thin overnight book, even small orders can take the only size at the best price.
- Reading a price move after a large print as the print's impact without checking whether the book was refilled or pulled.
Related
In the same section
- Implementation shortfall
- Market maker
- Market data entitlement
- Microstructure
- Market data API
- Market order
- Market by price
- Market order protection
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Frequently asked questions
- What is the difference between market impact and slippage?
- Slippage compares the fill price with a reference, such as the price when the order was sent. Market impact is the change in the market price that your order itself caused. A large order has both: it fills at worse prices as it walks the book, and it leaves the market at a new price that also affects your next order.
- How can a trader reduce market impact?
- By trading less size at once relative to the depth available, by using limit orders that add rather than remove liquidity, or by spreading an order over time as execution algorithms do. Each of these trades impact for other costs, such as not being filled or being exposed to price drift while the order is worked.