Time-Weighted Average Price TWAP

Time-Weighted Average Price TWAP is an execution algorithm that breaks a large order into smaller parts and executes them at regular time intervals throughout the day. The goal is to achieve an average price that approximates the time-weighted average of the asset during that period.

Unlike VWAP, which considers volume, TWAP focuses purely on time, making it simpler to implement and predictable in its execution pattern. It is commonly used when a trader wants to minimize the impact of their order on the market over a specific duration.

By smoothing out the execution, the trader reduces the risk of creating a significant price trend that would work against their overall objective. It is a standard tool in the institutional trading toolkit.