Time-Weighted Average Price, an algorithmic execution strategy that divides a large order into smaller equal-sized portions and executes them at regular intervals over a specified time window. TWAP aims to achieve an average execution price close to the time-weighted average market price, minimising the market impact of large orders. It is commonly used by institutional traders when they want to spread execution evenly across a trading session without favouring any particular price level.
Example
“The fund manager used a TWAP algorithm to sell 500,000 shares over four hours, executing roughly 2,000 shares every minute to avoid moving the market.”