TECHNICAL CONCEPTS
Price Impact
Definition
Price impact measures how much a trade moves the market price of an asset. Large trades in illiquid pools cause significant price impact, leading to unfavorable execution prices.
Example
Example
Buying $100,000 worth of a token in a small liquidity pool might cause 5% price impact, meaning you pay 5% more than the starting price.
Risks to Consider
Risks
- Higher trading costs
- Unfavorable prices
- MEV extraction
