Token Price Impact

Definition ∞ Token price impact refers to the effect that a large trade has on the market price of a digital asset. This phenomenon occurs when a significant buy or sell order executes against a liquidity pool or order book, causing the asset’s price to move unfavorably for the trader. The magnitude of price impact is inversely proportional to the liquidity available for that asset; low liquidity means even smaller trades can cause substantial price shifts. It is a critical consideration for traders and decentralized application users.
Context ∞ Token price impact is a common topic in cryptocurrency trading discussions and news, especially concerning decentralized exchanges (DEXs) and less liquid digital assets. Reports often advise users to be aware of potential price slippage when executing large trades. The presence of high price impact can indicate insufficient market depth or manipulation attempts, influencing trading strategies and the perceived efficiency of a market.