Why it matters
Impact is a hidden fee that scales with size and urgency. If you ignore it, your ‘edge’ may just be underestimating your own footprint.
Decision use: treat this term as a risk input. If you can’t observe it, you can’t size for it.
Common trap
Treating fills as exogenous. In reality, your order can move the market, especially in less liquid instruments or during volatility shocks.
Example
Your system exits 20 contracts at once. The first few fill fine, then price jumps away as your order eats liquidity. Your average exit is materially worse than your trigger.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.