The Time-Weighted Average Price (TWAP) algorithmic trade execution approach tries to produce an average execution price that is relatively close to the time-weighted average price of the user-specified timeframe. By breaking up a large order into smaller quantities and executing them at regular intervals over time, a TWAP approach is frequently employed to lessen the influence of a large transaction on the market.
The following scenarios favor TWAP to offer a superior execution price:
order size greater than the order book’s available liquidity.
Expected high price volatility with no discernible upward or negative trend