Jana checks the bitcoin price and decides to buy. She gets a small portion at the price she saw, but pays more for the rest because the cheapest offers are insufficient. Her own purchase has affected the terms on which it finishes. That is Market impact. On a live market, other participants are changing their offers and new information is arriving too. The final price alone cannot reveal exactly how much of the change Jana caused.
Jana notices a price rise after buying. It is tempting to connect the events, but others were trading at the same time and news may have arrived. CFA uses Market impact for the price effect caused by the order itself, distinguishing it from market movement during execution. To identify Jana’s exact contribution, we would need to know how the price would have developed without her purchase. We cannot directly observe that alternative market. [1]
An Order book contains offers with specific prices and quantities. If Jana wants to buy immediately and the cheapest selling offer is insufficient, her order may use more expensive levels. CME models the cost of a fixed quantity in this way. A snapshot, however, only shows what would happen under those offers. During actual execution, sellers can add or cancel offers and other buyers may reach some of them first. [2]
Slippage is the difference between the execution price and a chosen comparison price. Jana therefore needs to say what she is comparing her result with. Among implicit costs, CFA distinguishes the gap between buying and selling quotes, the order’s own impact, delay and unfilled trades. Fees come on top. If the market moved while she waited, the whole worse outcome cannot be attributed to her purchase. Slippage and Market impact are therefore not interchangeable names. [3]
A comparison price might be the price before submission, the closing price, or VWAP: the average trade price weighted by traded quantities over a chosen period. CFA distinguishes these benchmarks. They can give different results for the same purchase. Against the same reference, a higher execution price is worse for a buyer, while a lower one is worse for a seller. Always specify direction, timing and how the reference was selected; an isolated number says little. [1]
After a large purchase, the price might partially recover, but it might not. Olivier Guéant describes different mathematical models: some separate instantaneous and permanent components; others track impact fading as offers replenish the book. These terms belong to a model’s assumptions, not a promise about the next price move. One chart cannot tell us what part of the change will last forever or what part was actually caused by that trade. [4]
Jana might consider buying gradually: smaller pieces may consume fewer offers at any one moment. But the remaining purchase stays exposed to price changes and may never be completed. CFA therefore weighs execution speed alongside urgency, expected costs and risk. Slower does not automatically mean cheaper. Splitting an order changes trading conditions; it does not remove uncertainty. [1]
New offers can arrive after a trade. On futures markets, which trade contracts for future settlement, CME illustrates the importance of replenishment and actual execution prices. CFA also describes trading spread across venues and hidden orders absent from the usual public view. The same purchase need not have the same impact at another time or on another exchange. Futures evidence is not a guarantee of how a bitcoin platform will behave. [5] [3]
Jana can compare submission time, individual executions, their prices, total quantity and fees. She should also know whether part of the order remained unfilled. CFA includes delays and unfilled trades in the overall evaluation. The amount actually paid is an observable result; assigning price changes to different causes involves estimation. It is reasonable to report the exact outcome while acknowledging that the order’s own impact cannot reliably be isolated. [3]
What Jana pays, and what we still cannot know
In a fictional, unchanged book, the best buying offer, or bid, is 99900 USD/BTC and the best selling offer, or ask, is 100000 USD/BTC. Their midpoint is 99950 USD/BTC. Sellers offer 0.01 BTC at the best ask and another 0.01 BTC at 100200 USD/BTC. Jana buys 0.02 BTC and pays 1000 + 1002 = 2002 USD, averaging 100100 USD/BTC. This is 150 USD/BTC above the initial midpoint: 50 USD/BTC comes from moving to the best ask and 100 USD/BTC from using the next price level. Across the whole quantity, the difference is 3 USD. The model excludes fees and changes to the book. It breaks down the price paid, rather than estimating the permanent impact of Jana’s purchase on a live market.
For the clearest picture, read this entry together with Market depth, Slippage, Market liquidity, Market microstructure, Order book, Volume weighted average price. The reverse links also lead from Market depth, Depth chart, Market liquidity, Price discovery.
01If the price rises after my purchase, did I cause it?+
The sequence alone does not prove that. Others are trading and new information is arriving at the same time. We cannot directly observe the price that would have occurred without your purchase, so the whole rise cannot automatically be attributed to you.
02Does splitting a purchase into smaller pieces eliminate impact?+
There is no guarantee. Smaller orders may reduce immediate pressure, but the market can change during a longer wait and some of the purchase may remain unfilled. Repeated orders may also reveal your intentions to others. The overall outcome and risk matter, not just the size of one piece.