Estimating Market Impact from a Large Buy Order
Summary
The document asks how to estimate the price impact of a market buy order that is larger than the displayed ask size. Its example gives an ask price and quantity, then considers an order that would consume multiple levels of the order book. It seeks a general method rather than a precise prediction for one trade.
No answer or estimation method is included, so the document does not provide a model, calculation, or empirical evidence. The question does highlight why displayed liquidity at the best ask alone is insufficient to determine the resulting price change: the order book beyond that level would matter. It also explicitly assumes away iceberg orders and dark pools, leaving hidden liquidity and other execution conditions outside its scope. As a standalone note, it identifies a market impact problem but does not resolve it.
Key ideas
- A market buy larger than the best ask size may execute across multiple price levels.
- Displayed best ask size alone is not enough to estimate the full price impact.
- The document poses the estimation question but supplies no method or evidence.
- Its assumptions exclude iceberg orders and dark pools.
Tags
Full text
# Estimate the effect of a buy order on stock price # Estimate the effect of a buy order on stock price If a stock is having ask = 100$ for 100 shares Ask size, and I put a buy market order for 1000 shares, is there an approach to estimate that this buy order will move up the stock price by what %? I am looking for a general approach as I understand that the question may not have a definite answer. Let us assume no iceberg orders or dark pools.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.