Risk glossary

 

Market impact

Market impact is the change in the price of an asset caused by the trading of that asset. Buying an asset will drive its price up while selling an asset will push it down. The extent to which the price moves is a reflection of the liquidity of the asset: the more liquid the asset, the less any one trade will affect its price. Trading an asset can also affect the prices of other assets, a phenomenon known as cross impact.

Trading algorithms are designed to optimise the rate of trading so as to minimise market impact but also to minimise volatility risk. For example, a large trade can be broken into a series of smaller trades rather than executed in one go. But this exposes the trader to the risk of the market moving against them while those trades are being executed.

Click here for articles on market impact. 

  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: