Perp: Price Impact Module

Key Features

• Dynamic Calculation: Computes price impact based on trade size and market depth.
• Open Interest Tracking: Records open interest across multiple time windows.
• Market Depth Management: Allows configuration of market depth parameters per trading pair.
• Time-Weighted Open Interest: Uses a time-windowed approach to calculate cumulative open interest.
• Long/Short Handling: Calculates price impact differently for long and short trades.

Components

State

• OI_WINDOWS_SETTINGS: Settings for open interest windows.
• WINDOWS: Stores open interest data for specific time windows.
• PAIR_DEPTHS: Market depth information for trading pairs.
• TRADE_LAST_WINDOW_OI: Tracks the last window’s open interest for trades.

Functions

• get_trade_price_impact: Calculates price impact for a trade.
• add_price_impact_open_interest: Updates open interest when a trade is opened.
• remove_price_impact_open_interest: Updates open interest when a trade is closed.
• get_price_impact_oi: Retrieves current price impact open interest.

Price Impact Calculation

The price impact is calculated using this formula:

$$Price\ Impact\ % = \frac{(Start\ OI + \frac{Trade\ Size}{2})}{One\ Percent\ Depth}$$

• Start OI: Starting open interest for the relevant direction (long/short).
• Trade Size: Size of the trade.
• One Percent Depth: Trading volume needed to move the price by 1%.

Calculation Process

1. Fetch Market Depth: The module retrieves the market depth from PAIR_DEPTHS.

2. Calculate Current Open Interest: It sums open interest across multiple time windows, giving more weight to recent windows.

3. Compute Price Impact Percentage:

   let price_impact_p = Decimal::from_ratio(
       start_open_interest_usd + trade_open_interest_usd.checked_div(2_u64.into())?,
       one_percent_depth_usd
   ).checked_div(Decimal::from_atomics(100_u64, 0)?)?;

4. Apply Price Impact: The calculated impact is applied to the trade’s execution price:

   let price_after_impact = if long {
       open_price + price_impact
   } else {
       open_price - price_impact
   };

Example

Let’s look at a long trade with these values:

• Open Price: $1000
• Trade Size: $100,000
• Current Open Interest: $500,000
• One Percent Depth: $1,000,000

1. Calculate price impact percentage:

   Price Impact % = (500,000 + 100,000 / 2) / 1,000,000 / 100 = 0.55%

2. Calculate price impact:

   Price Impact = $1000 * 0.55% = $5.50

3. Apply price impact:

   Price After Impact = $1000 + $5.50 = $1005.50

Open Interest Management

The module uses a time-windowed approach for open interest.

1. Window Configuration: OI_WINDOWS_SETTINGS defines the duration and count of windows.
2. Adding OI: add_price_impact_open_interest updates the current window’s open interest when a trade is opened.
3. Removing OI: remove_price_impact_open_interest adjusts open interest when a trade is closed.
4. Time-Weighted Calculation: Open interest from multiple recent windows is used for a more stable metric.

Usage

1. Initialize PAIR_DEPTHS with market depth values.
2. Configure OI_WINDOWS_SETTINGS.
3. Call get_trade_price_impact to calculate price impact for a trade.
4. After execution, call add_price_impact_open_interest or remove_price_impact_open_interest to update open interest.

Configuration

Fine-tune the module by adjusting these parameters:

• one_percent_depth_above_usd and one_percent_depth_below_usd in PAIR_DEPTHS.
• windows_count and windows_duration in OI_WINDOWS_SETTINGS.

Future Improvements

• Implement dynamic adjustment of market depth.
• Add support for asymmetric price impact.
• Introduce more advanced time-weighting algorithms.