Investment
Impact Cost
Also known as: Market Impact, Execution Cost
The difference between intended execution price and actual execution price due to market liquidity constraints.
Detailed Explanation
Impact cost measures how much the market price moves against you when executing large trades. In illiquid stocks (common in smallcaps), large buy orders push prices up while large sell orders push prices down. Impact costs of 1-2% are normal, but can spike to 5-10% during volatile periods. This hidden cost significantly affects returns in smallcap investments and mutual fund performance.