Trading impact refers to the effect that a specific trade or series of trades has on the market price of an asset, particularly in relation to its liquidity and order book depth. Large buy or sell orders can move the market price significantly, especially for less liquid digital assets. This phenomenon, also known as market impact or price impact, reflects the cost incurred by executing a trade that cannot be absorbed by existing orders at the current price. Understanding trading impact is crucial for institutional traders and large-volume participants.
Context
Crypto news often discusses trading impact when analyzing significant price swings or the execution of large institutional orders in digital asset markets. Debates frequently concern the mechanisms employed by exchanges and decentralized protocols to mitigate adverse trading impact, such as improved liquidity provision or sophisticated order routing. The presence of high trading impact can deter large investors, affecting market depth and overall efficiency. Reducing trading impact is a continuous goal for market makers and platform developers.
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