Market impact cost
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Market impact cost is a measure of the liquidity of the market. It reflects the cost faced when actually trading an index. For a stock to qualify for possible inclusion into the Nifty, it has to have a market impact cost of below 0.75% when doing Nifty trades of half a crore rupees. The market impact cost on a trade of Rs.3million of the full Nifty works out to be about 0.05%. This means that if Nifty is at 2000, a buy order goes through at 2001,i.e.2000+(2000*0.0005) and a sell order gets 1999,i.e.2000-(2000*0.0005).
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