Price Impact

Overview

The Price Impact Module is a key component of Sai, responsible for calculating and applying price impact to trades based on their size and market depth. It ensures that larger trades have a more significant effect on the execution price, reflecting real-world market dynamics and promoting fairness in the trading system. It is applied on all position open.

Key Features

1. Dynamic Price Impact Calculation: Computes price impact based on trade size and market depth.
2. Open Interest Tracking: Maintains a record of open interest across multiple time windows.
3. Market Depth Management: Allows configuration of market depth parameters for each trading pair.
4. Time-Weighted Open Interest: Uses a time-windowed approach to calculate cumulative open interest.
5. Separate Handling for Long and Short Positions: Calculates price impact differently for long and short trades.

Price Impact Calculation

The price impact is calculated using the following general formula:

Price Impact = (Start OI + Trade Size / 2) / One Percent Depth

Where:

• Start OI: The starting open interest for the relevant direction (long/short)
• Trade Size: The size of the trade being executed
• One Percent Depth: The amount of trading volume required to move the price by 1%

Example

Let’s consider a long trade with the following parameters:

• 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