Explain 'Market Impact' in trading.

Explain 'Market Impact' in trading.

Approach: Describe how the act of trading moves the price of an asset.

The effect that a market participant has when they buy or sell an asset. Large orders 'eat' through the order book, pushing the price in an unfavorable direction (slippage).

Follow-up: How do algorithms like VWAP or TWAP minimize market impact?

Key concepts: liquidity, slippage, order book.