Market Impact

Market impact is the amount a trade moves the price against the person executing it. A buy order consumes the offers resting at the best price, then the next-best level, so a large order finishes at a worse average rate than the quote shown when it was sent; that difference is impact cost and it forms part of overall slippage. Impact grows with order size relative to the depth available and shrinks in liquid conditions, which is why the same trade can be nearly costless during the London–New York overlap and expensive in a thin Asian session. Execution techniques that split an order into slices, or route it across several liquidity providers, aim to reduce impact rather than remove it.