🈂️Price Impact
Price impact is an adjustment to your execution price when you open or close a position. It reflects how your trade affects the balance between longs and shorts in the market.
Price impact keeps markets healthy by rewarding trades that reduce imbalance and penalizing trades that increase imbalance.
How Price Impact Works
Price impact depends on whether your trade moves the market toward balance or away from it:
If your trade increases imbalance
You receive a worse execution price
Example: opening a long when longs are already much larger than shorts
If your trade reduces imbalance
You receive a better execution price
Example: opening a short when longs are much larger than shorts
Price impact is applied directly to the execution price at the time of execution
How the Impact is Determined
Price impact increases as the market becomes more imbalanced.
Marks uses a curve that makes small imbalances cause small impact, while large imbalances result in disproportionately higher impact. This encourages balanced markets and discourages oversized one-sided flows.
This creates a conservative, self-balancing system that remains stable even when markets move quickly.
Example
Assume the market has significantly more longs than shorts and you want to open a position:
Open Long
Worsens balance
Worse than oracle price
Open Short
Improves balance
Better than oracle price
Last updated