Price Impact
Price impact describes the immediate effect a trade has on prices. When a trader places an order, the market adjusts to absorb it. If liquidity is deep, prices move only slightly. If liquidity is thin, even a small trade can cause a noticeable shift in probability.
In prediction markets, price impact reflects how information and capital interact. On platforms like Polymarket, Kalshi, Myriad, and Manifold, price impact varies across markets and over time. Active, well-funded markets tend to have low price impact, while niche or early-stage markets show higher sensitivity. This behavior is visible in prediction markets data as smooth moves in some markets and sharp jumps in others.
Price impact is not just about trade size. Timing, current liquidity, and existing order flow all influence how strongly a trade affects the price.
Why It Matters
Price impact helps determine how reliable a probability signal is. High price impact can exaggerate moves, while low price impact usually indicates stronger, more stable prediction markets data.
Why does price impact differ across prediction markets?
It differs because liquidity and participation vary. Markets with more capital and activity can absorb trades easily, leading to smaller price changes. Thin markets react more strongly to each trade. Analysts use prediction markets data to compare price impact and judge market quality.
How does price impact affect forecasting accuracy?
High price impact can make probabilities noisy, especially in the short term. A single trade may reflect capital size rather than information. Low price impact allows prices to respond mainly to genuine belief changes, improving the accuracy of prediction markets data.
What insights can analysts gain from price impact patterns?
Analysts can identify which markets are robust and which are fragile. Sudden large price moves with low volume may signal liquidity gaps rather than new information. Tracking price impact over time helps separate information-driven updates from mechanical effects in prediction markets data.
Real-World Example
A low-liquidity Polymarket market jumps several percentage points after one moderate buy order. In contrast, a high-liquidity market barely moves after a much larger trade, clearly showing the difference in price impact.
Price Impact and FinFeedAPI
Analyzing price impact requires precise trade, price, and liquidity data. FinFeed's Prediction Markets API provides structured prediction markets data— that developers can use to measure price impact, compare markets, and evaluate how efficiently prices respond to trades.