How markets work
Market impact
The extent to which your own order moves the price against you as it executes.
How it works
Buying pushes the price up and selling pushes it down. For small orders the effect is negligible. For orders that are large relative to normal volume, the act of trading is itself a cost.
This is why institutions break large orders into pieces over hours or days, and why a fund that has grown very large finds it harder to hold small companies at all.
Related terms
- SlippageThe difference between the price you expected and the price you actually got.
- Average daily volumeThe typical number of shares traded per day, usually averaged over the last month or quarter.
- LiquidityHow quickly you can turn something into cash at a fair price, without moving the price against yourself.
- VWAPThe average price a security traded at over a period, weighted by how much traded at each price.
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