Price Impact
Price impact is the market movement caused by your trade, often larger in low liquidity environments.
Definition
Price impact is the change in market price caused by executing a trade. In low liquidity markets, impact can be large because order book depth is limited.
Why it matters
Price impact is a hidden cost. It can reduce realized outcomes beyond visible bid ask spread and can make the implied probability you face worse than expected.
Common pitfalls
Assuming small size has no impact: Even small orders can move thin markets.
Ignoring time: Impact can decay or persist depending on market conditions.