🔮Price Impact

Price Impact: Measuring Trade Influence in Liquid Markets.

Price Impact refers to the difference between the expected price of a trade and the price at which it will likely execute in the market. This disparity arises due to factors like trade size relative to the asset's liquidity. It is the influence of user's individual trade over the market price of an underlying asset pair. It is directly correlated with the amount of liquidity in the pool / Automated Market Maker (AMM).

Price Impact = Target Volume x (Actual Price - Target Price)

Let's understand this with a hypothetical scenario

Given:

• Actual Price of SALTZ = $0.52

• Target Price = $0.50

• Target Volume = 1,000 tokens

Using the formula: Price Impact = Target Volume x (Actual Price - Target Price)

Insert the given values: Price Impact = 1,000 x ($0.52 - $0.50) Price Impact = 1,000 x $0.02 Price Impact = $20

In this example, the Price Impact amounts to $20.