Guide · Execution

How to calculate price impact

Price impact is the amount your own trade moves the market price as it executes, and on automated market makers it is entirely predictable from the pool's math. Understanding it turns a confusing quote into something you can reason about: why a large order returns proportionally fewer tokens, why splitting a trade helps, and why price impact is a different thing from slippage. This guide explains how to calculate price impact with worked intuition, not just a definition, so you can size trades deliberately.

Where price impact comes from

A standard AMM holds two assets in a pool and keeps the product of their quantities constant. When you buy one asset, you remove it from the pool and add the other, which shifts the ratio and therefore the price. The bigger your trade relative to the pool's reserves, the more the ratio shifts mid-trade, so each successive unit costs more than the last. Price impact is simply the difference between the price at the start of your trade and the average price you actually paid.

An intuitive worked example

Imagine a pool with 100 ETH and 200,000 USDC, so ETH starts at 2,000 USDC. Buying 1 ETH barely moves the ratio — impact is tiny. Buying 10 ETH removes a tenth of the ETH side, so the price climbs noticeably as you go, and your average cost is meaningfully above 2,000. Buying 50 ETH — half the pool — sends the price soaring and your average cost far above the start. The same dollar trade in a pool ten times larger would show a tenth of the impact. Depth is everything.

How the quote shows it

Aggregators display price impact as a percentage in the quote. A fraction of a percent means the pool is deep relative to your size. A few percent is a warning that you are a large participant in a small pool. Double-digit impact means you are paying a heavy premium simply for moving the curve, and you should reconsider size, venue, or whether to trade at all.

Price impact is not slippage

These two are constantly confused. Price impact is deterministic and caused by your own trade size against pool depth — it exists even if you are the only trader. Slippage tolerance is your buffer against other people's activity between signing and confirmation. Widening slippage does nothing to reduce price impact; it only allows a high-impact fill to go through. The cure for high impact is a smaller trade or a deeper pool.

Reducing impact in practice

Split large orders into smaller clips, ideally spaced so the pool has time to rebalance through arbitrage between them. Use an aggregator that can route across multiple pools or split a single order, which spreads the impact. And check pool depth before sizing — a quick look at reserves or TVL tells you how much you can trade before impact becomes the dominant cost.

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Risk disclosure

XAUConnect is a non-custodial swap aggregator. Digital assets are volatile and may lose value rapidly. Content on this page is educational and not investment advice. Verify every contract address on the official block explorer before approving a transaction.

Frequently asked questions

What causes price impact?

Your own trade size relative to the pool's reserves. Removing a large fraction of one asset shifts the price along the AMM curve, so larger trades cost progressively more per unit.

How much price impact is acceptable?

A fraction of a percent is healthy. A few percent is a warning that your size is large for the pool. Double-digit impact means you are paying a heavy premium and should reduce size or change venue.

Does raising slippage reduce price impact?

No. Slippage protects against others' activity before confirmation; price impact comes from your own trade. Raising slippage only lets a high-impact fill through.

How do I lower price impact?

Trade smaller clips, use a deeper pool, or use an aggregator that splits the order across venues. Check pool depth before sizing.

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