TL;DR

Price impact is the change in a token’s pool price caused directly by your trade. In a constant product AMM, every trade shifts the reserve ratio, moving the price. The larger your trade relative to the pool’s reserves, the greater the price impact. Unlike slippage (which includes external factors), price impact is deterministic: given the pool state and trade size, you can calculate it exactly.

How It Works

Price impact is the most predictable cost of trading on an AMM. Before you even submit a transaction, you can calculate exactly how much your trade will move the price.

In a constant product AMM, the pool maintains x * y = k. When you buy tokens worth $10,000, you add $10,000 to the USDC reserve and remove tokens from the token reserve. The AMM solves for how many tokens you get while keeping the product constant. The spot price before your trade was y/x; after your trade, both x and y have changed, so the new spot price is different.

The percentage change between the starting spot price and the ending spot price is the price impact. For small trades, it’s tiny. For large trades relative to the pool, it can be enormous. A trade that equals 10% of one side of the pool will have roughly 20% price impact (the exact number depends on the curve shape and which direction you’re trading).

This is the key distinction from slippage: price impact is a snapshot calculation. Given the exact pool state right now and a specific trade size, the result is mathematically certain. Slippage adds uncertainty: other transactions might execute before yours, MEV bots might front-run you, and the pool state when your transaction is mined might differ from when you submitted it.

Even the smallest possible trade has some minimum effective price impact due to trading fees. A 0.3% fee means the “best case” execution is 0.3% worse than the spot price, before any curve movement. Fees function as an additional spread on top of the geometric price impact.

For token launches, price impact is the metric that determines whether the pool is functional. If a $10,000 buy has 50% price impact, the pool is effectively untradeable for any serious participant. The slippage table in a launch simulator shows price impact at standard trade sizes, giving you a clear read on pool usability.

Try It Yourself

See price impact at every trade size: the Token Launch Simulator generates a slippage table showing price impact for $1K, $5K, $10K, and $50K trades against your configured pool. Increase the liquidity budget and watch the price impact percentages drop. Try the Token Launch Simulator →

Related Concepts

• Slippage: The total execution cost including price impact plus timing effects
• Liquidity: The factor that most directly determines price impact for a given trade size
• Constant Product AMM: The formula that governs how trades create price impact
• Liquidity Pool: The reserve pool whose state determines the price impact calculation
• Spot Price: The reference price from which price impact is measured
• Constant Product Formula: The x * y = k math that determines the exact price impact for any trade

Frequently Asked Questions

What is price impact in DeFi?

Price impact is how much a specific trade moves the price in a liquidity pool. In a constant product AMM, buying tokens reduces the token reserve and increases the base asset reserve, which raises the spot price. The percentage change between the spot price before and after your trade is the price impact. It depends entirely on your trade size relative to the pool reserves.

How is price impact different from slippage?

Price impact is deterministic and calculated solely from the AMM formula and current reserves: it’s the theoretical price movement your trade causes. Slippage is the total deviation from your expected price, which includes price impact plus any additional movement from other trades executing before yours, MEV activity, and network delays. In a vacuum with no other traders, slippage equals price impact plus fees.

Why does price impact matter more for small pools?

Price impact is proportional to trade size divided by pool reserves. A $10,000 trade in a $1,000,000 pool causes roughly 1% impact. The same trade in a $50,000 pool causes roughly 20% impact. Small pools make even routine trade sizes expensive, which discourages participation and can create a negative feedback loop of declining liquidity and volume.

Can price impact be positive?

From the trader’s perspective, price impact is always a cost: you get fewer tokens than the spot price implied. But from an observer’s perspective, a large buy has positive price impact (pushes price up) and a large sell has negative price impact (pushes price down). The term usually refers to the cost to the trader.

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