Time-weighted average price

Time-weighted average price ( TWAP ) is a financial term for the average price of a security over a given period of time.

The price is calculated by taking the price of securities transactions at regular intervals and calculating a simple average of these prices, without taking into account the volume of transactions for each of these prices.

TWAP-price is the simplest price indicator for a certain period of time. It allows traders and their clients to evaluate the execution of an order by comparing the price at which the order was executed in each given time interval with the average price of transactions in a given time interval.

One of the first and earliest algorithmic trading algorithms is built on the basis of TWAP, when a large order is divided into equal small orders, which are sent to the market at regular intervals. In another way it is also called “Clock” or “Slicer”. TWAP, as the most primitive algorithm of algorithmic trading, is often opposed to the VWAP algorithm, as a more advanced one. For comparison, if we take two trading sessions - morning and afternoon, then the TWAP algorithm will send 50% of the request during the morning and 50% - during the afternoon, and the VWAP algorithm - 40% during the morning, and 60% - during the afternoon . The predictability of the TWAP algorithm allows other market players to easily detect its actions and play against it, so some elements of randomness are usually added to the TWAP algorithm ^[1] .