What is price impact?

Price impact is the difference between the expected price of a trade and the actual price you receive after the swap is executed. It happens because your trade affects the liquidity pool on a decentralised exchange.

How price impact works

Decentralised exchanges use liquidity pools instead of traditional order books.

When you swap tokens, the ratio of assets in the pool changes.

Large trades relative to the pool size move the price more significantly.

The result is that you may receive slightly fewer tokens than the quoted rate.

Example

A liquidity pool has equal value in ETH and USDC.

You place a small trade, and the price hardly moves.

You place a large trade, and the pool becomes unbalanced, so the price you receive shifts against you.

Why price impact matters

Large trades - the bigger the trade compared to pool size, the higher the price impact.

Low liquidity - small pools are more sensitive to trades.

Cost efficiency - understanding price impact helps you avoid losing value unnecessarily.

Managing price impact in Wraith Wallet

Wraith Wallet shows the estimated price impact before you confirm a swap.

You can reduce price impact by splitting large swaps into smaller ones.

Choosing tokens with deeper liquidity pools often leads to better rates.

Key points to remember

Price impact is caused by how your trade changes the balance of a liquidity pool.

Larger trades and lower liquidity increase price impact.

Wraith Wallet displays estimated price impact so you can make more efficient swaps.

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