Time-weighted average price (TWAP) is the average price of a security over a specified period of time. It is a measure of a security’s or, broadly, an asset’s average price over a period of time. However, it doesn’t take into consideration the number of securities traded at each price point over the period. High-volume traders usually seek to buy or sell a security when it reaches the TWAP level.
TWAP is a trading strategy whereby traders can compare security price points over a time horizon. A TWAP trade is more likely to be executed evenly in terms of volume across both halves of the day. TWAP algorithms attempt to optimize a trade’s/ an order’s average price for execution over a specified time period, particularly large orders that are expected to create a huge market impact.
