The intuition: why doubling size doesn’t double impact

1:40:20but their buy order is not going to move the price by four times. It's only going to move the price by twice what mine moved. >> Okay? >> Because they did four and the square root of four is two. If somebody put in nine times my order, it would only move the price by three. Mhm. >> And it kind of makes sense >> because, you know, if if some asset is like trading at $10 and then I put I put in I put in like uh I want to buy something at like 10.1, right? There's not going to be a lot of people who are willing to sell it to me. >> Mhm. >> So, the price is really going to go to 10.1, right? But if I if I put in an order for like I want to buy like a

1:41:00bunch a bunch at like 12 or something, right? There's going to be a lot of sellers that are going to be really keen and so the price is not going to move that much because a bunch of sellers just like fill that order. Yes. Right. So that's the the intuition behind it. >> The idea is that it's nonlinear in that sense. Right. The the more that I the more volume that I want to buy or sell, the less the price is going to get impacted. It's not linear. linear would mean that it's directly proportional. Here it's like a diminishing return. Yes. >> Type thing. >> Yes. >> Okay. So the question is is this truly universal right? >> Yes. >> Now in order to actually um measure something like this, right? I mean there's a lot of people who think that

1:41:41it's non not totally universal, right? Maybe it depends on the micro structure like there's inventory risk models like how much inventory is out there in the market. Um, like if there's large traders, like what if there's like a giant whale, you know, when we talk about Bitcoin whales, like like if there's a if there's a market where there's only big orders, >> right? No one's buying like small stuff and it doesn't even matter if you're buying small stuff, then does that change the dynamics of the square root law right? >> Okay. The univers which makes which makes >> which totally makes sense. But the universality hypothesis says that no, it's still 0.5, right? the the exponent is always going to be square root. >> Okay? So,

1:42:21>> um to discern between whether it's one or the other, you have to get some kind of very good data. Okay? Because normally when when we want to analyze data, there's these things called meta orders, right? Like there's a hidden parent order and then there's anonymous like child orders. Like if I want to buy like 10 10 stocks of a particular asset,