The price movement that is caused by executing a trade/ trading order. Positions to buy or sell (long positions/ short positions) would have an effect on the price paid or received for a security. It usually occurs from the time of a trading decision to the time of order execution. It results from the leakage of information into the market for a specific security about an approaching order. When a large order is entered, sharp price movements may ensue, especially in an illiquid security.
Market impact is a major component of trading cost for large trades/ large investors.
Comments