What is price impact?

Price impact measures the extent to which your trade can alter a token's market price. When your trade significantly affects the underlying token's liquidity depth, it can create imbalances in liquidity pools, leading to a higher price impact.

Price impact is also directly proportional to the size of the trade order relative to the amount of liquidity currently available. Large trade orders in a pool with limited liquidity will result in a high price impact, as the trade consumes a substantial portion of the available tokens, causing a significant price shift. Conversely, large trade orders in a highly liquid pool are less likely to have a high price impact, as the ample liquidity can absorb the trade more effectively, resulting in a smaller price change.