Time-Weighted Average Price (TWAP)
An order-execution strategy that splits a large order into smaller pieces executed evenly over a set time period, to approach the average price over that window.
A Time-Weighted Average Price (TWAP) strategy breaks a large order into many smaller slices and executes them at regular intervals over a chosen time period, rather than placing the full order at once. The goal is to approximate the simple average price over that window and avoid the price impact (see Kaavon's "Price Impact" glossary definition) that a single large order would otherwise cause by consuming too much of the available order-book liquidity in one moment.
TWAP is distinguished from Volume-Weighted Average Price (see Kaavon's "Volume-Weighted Average Price (VWAP)" glossary definition), which is primarily used as a benchmark indicator weighting price by traded volume rather than evenly by time — a TWAP execution strategy ignores volume entirely and simply spreads execution evenly across the clock. TWAP is commonly used by funds, market makers, and trading desks executing institutional-size orders, and is also offered as an automated order type on many exchanges and DeFi trading interfaces.
Examples
- A trader using a one-hour TWAP order to buy a large position has the exchange automatically split and execute the order in even slices across that hour rather than all at once.
- TWAP execution helps reduce price impact and front-running risk for large orders compared to submitting the full size as a single market order.