Price impact

Price impact or price impact is an expression used to describe the correlation between an incoming order and the change in price of the underlying asset as a result of a trade.

Buy trades push the price of the asset up, while sell trades push it down. The degree of price change as a result of a trade largely depends on the liquidity of the affected trading pair.

The more liquid the trading pair is, the less its influence on the price will be when making a deal of a certain size. This is due to the fact that the presence of a large amount of buying and selling on the market allows you to quickly execute orders without a significant change in price.

At the same time, when trading in illiquid markets, even small trades can significantly affect the price of an asset.

Therefore, when planning trading strategies and risk management, it is important to consider the impact on price when making transactions in a particular market.

Traders, especially those who trade in markets with limited liquidity or make large trades, should be aware of the impact their trade has on the price of the asset. Their second purchase will, on average, be more expensive than the first because of their market strength.

During each exchange, you can see the effect of losses on the token price.

To avoid a sudden change in the current price when making an exchange, there is a parameter of slippage tolerance, which allows you to set the maximum possible price change and does not allow you to execute the transaction if this threshold is exceeded.

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