Crypto glossary
Price impact
Price impact is how much a trade itself moves the price in a pool or order book; it grows with trade size and shrinks with deeper liquidity.
Every trade on an automated market maker changes the ratio of the pool's reserves and therefore its price. Price impact measures that change, comparing the average price a trader receives with the price before the trade. In an order book, the equivalent is how many price levels a market order has to eat through. A 1,000-dollar swap in a deep pool may move the price by a hundredth of a percent; the same order in a thin pool can move it by several percent.
DEX interfaces and aggregators display price impact before confirming a swap, and aggregators split large orders across several pools to reduce it. Traders, funds and treasuries watch it closely when buying or selling illiquid tokens.
Price impact is often confused with slippage. Impact is known in advance from the pool's state; slippage is the further difference that appears if the price changes between signing and execution, which is what the slippage tolerance setting caps. High impact warnings are also a common sign of a low-liquidity or manipulated token.
Example
A wallet tries to sell 200,000 dollars of a small token in a pool holding only 400,000 dollars of liquidity, and the interface warns of a 30% price impact, so the user splits the sale over several days.