What Is the Time-weighted Average Price (TWAP)?
Time-weighted average price (TWAP) is a trading algorithm used by traders to execute large orders in the market. It works by dividing the total order quantity into smaller parts and executing them at regular intervals over a specified period of time. This helps reduce market impact, as it prevents large trades from moving prices significantly. TWAP also allows traders to take advantage of short-term price movements that may occur during the execution process.
The main benefit of using TWAP is that it can help minimize transaction costs associated with larger orders, since they are spread out over an extended period of time rather than executed all at once. Additionally, this strategy can be beneficial for those who want to maintain anonymity when placing their trades, as there will not be any single trade size or pattern that could potentially reveal information about their identity or intentions in the marketplace.