Market impact is the amount the average price per token increases due to the size of a market order.
When you make a market order you decide the amount of tokens you are giving in the trade. In return you get the best trade rate available in the market. The larger the market order the more orders from the order book it will take to fill the market order. Each successive order in the order book will be at a worse trade rate.
For example, if you were buying tokens from the following order book.**
|3 Tokens||@ 100 ETH|
|5 Tokens||@ 102 ETH|
|8 Tokens||@ 108 ETH|
|13 Tokens||@ 112 ETH|
If you buy 3 or less tokens in one order the market impact will be zero since each token will cost you 100ETH.
If you buy 5 tokens the average price for each of those tokens will be 100.8ETH. That would be a 0.8% market impact.
If you buy 10 tokens the average price for each of those tokens will be 102.6ETH. That would be a 2.6% market impact.
If you buy 20 tokens the average price for each of those tokens will be 106.1ETH. That would be a 6.1% market impact.
The bigger your market order relative to the available orders in the market the greater market impact it will have.
RELAY gives you the best estimate of what the trade rate will be. This factors in market impact but does not factor in price slippage. Read more about price slippage and slippage limits here.
**RADAR RELAY doesn't show an order book because it is pulling liquidity from multiple sources. This helps get the best price and reduces market impact.