Trade Execution Impact

Trade execution impact is the degree to which a specific trade alters the prevailing market price of an asset. In automated market makers, this is directly linked to the size of the trade relative to the total liquidity.

A high impact indicates that the trade is significantly moving the price, which may be unfavorable for the trader. Minimizing this impact is a primary goal for both traders and market makers.

It involves managing order sizes and selecting liquidity sources with sufficient depth. This concept is fundamental to understanding the mechanics of price discovery and market efficiency.