Investors often need to buy or sell stock index futures contracts of a considerable scale in the futures market. The supply and demand forces of this scale will affect the market price changes, making the transaction price not the entrusted price. Investors should bear the impact cost of futures trading. The worse the market liquidity, the greater the impact cost that investors need to bear.
The existing research results show that in the case of good market liquidity, most transactions will only produce one spread, or at most two spreads. At this time, a spread can be used as the impact cost of the futures market; When the market liquidity is insufficient, the bid-ask spread may be large, and the spread greater than the first grade is regarded as the impact cost of the futures market.
At the same time, "liquidity" should be considered when calculating "futures impact cost". It is not advisable to reduce the transaction speed too much in order to reduce the impact cost. If the trading time is too long, the risk of futures price fluctuation will increase, and the loss will outweigh the gain. We should strike a balance between impact cost and transaction time.
Impact cost refers to the cost of buying or selling securities on a large scale quickly, failing to make a deal at a predetermined price, thus paying more. Impact cost is considered as the fatal wound of large institutions.
The full name of impact cost is price impact cost. It is usually used internationally to measure the liquidity of the stock market. It can also be called liquidity cost, which refers to the impact on the price when a certain number of orders (orders) are closed quickly, so it is an index that includes two elements: immediacy and reasonable price.