Define ‘Price Impact’ in the Context of an Illiquid Asset Trade

Price impact is the change in an asset's market price directly caused by the execution of a trade. For illiquid assets, even a moderately sized trade can move the price significantly because there are few standing orders in the order book.

This movement is a cost to the market maker, as their hedging trade pushes the price against their position, making the overall transaction less profitable or even loss-making.