StrategyIntermediate#Algo Trading#Execution
TWAP (Time Weighted Average Price)
T
Definition
An algorithmic execution strategy that spreads a large order over a fixed period to minimize market impact.
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Concept Diagram
Key Takeaways
1
TWAP executes orders evenly distributed over a specified time period to minimize market impact
2
Calculates the average price weighted by time rather than volume
3
Used for large position entries and exits that would cause excessive slippage in a single trade
4
Algorithm splits a large order into smaller chunks executed at regular intervals
Practical Example
You need to buy $1M of BTC without moving the market. A TWAP order splits it into 20 buys of $50K each executed every 15 minutes over 5 hours — resulting in an average price close to the market mid-price throughout the period.
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Related Terms
Trading
DCA (Dollar Cost Averaging)The practice of investing a fixed amount of money in an asset at regular intervals, regardless of the price, to reduce volatility impact.
Trading
Post-Only OrderA limit order that ensures the trader only acts as a 'maker' (adding liquidity) and never as a 'taker' (removing it).
Trading
VWAP (Volume Weighted Average Price)The average price an asset has traded at throughout the day, based on both volume and price. Used as a benchmark for institutions.
Trading
SlippageThe difference between the expected price of a trade and the actual price at which the trade is executed due to low liquidity.
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