Before revision:  Starting from simple principles, we show that the impact of a trade on prices is directly proportional to the size of the transaction and the amount of liquidityof the asset. This leads to a new characterization of self-financing trading strategies and a sufficient condition for no arbitrage.
After revision:  Starting from simple principles, we show that the impact of a trade on prices is directly proportional to the size of the transaction and the level of liquidity. We obtain a simple characterization of self-financing trading strategies and a sufficient condition for no arbitrage.