What Is Market Impact?

Why can a large order change the price at which it gets filled?

Market impact occurs when an order affects market prices during execution.

Imagine buying a substantial quantity of NQ contracts when relatively little sell liquidity is available near the current price.

The order may consume multiple price levels, resulting in an average fill above the initial price.

The larger the order relative to available liquidity, the more important market impact can become.

This is one reason institutional execution strategies often consider order size, market depth, and execution timing.

For retail traders, the same principle explains why slippage can increase during fast markets or when liquidity is limited.

Execution quality is part of trading performance, not an afterthought.