What is TWAP (Time-Weighted Average Price) Strategy and How Does It Work

What is a TWAP (Time-Weighted Average Price) Order?

TWAP (Time-Weighted Average Price) is an algorithmic trading execution strategy designed to achieve an average execution price close to the time-weighted average price over a user-specified period. This TWAP strategy is commonly used to minimize the market impact of large orders by breaking them down into smaller quantities and executing them at fixed time intervals.

Time-weighted average pricing provides better execution prices in the following scenarios:

• The order quantity exceeds the liquidity available in the order book
• During periods of high market volatility, when no clear upward or downward price trend is expected

How to Set Up a TWAP Strategy on Web Platform

1. Navigate to the Futures section and select [TWAP] from the order dropdown menu.

2. You can read the TWAP trading guide through the popup window. If you are new to TWAP, it is recommended that you carefully review the guide before creating a TWAP strategy.

3. Select your desired trading pair or contract and enter your trading details: direction (buy or sell), trade size, and execution duration.

After setting all necessary parameters, click [Buy/Long] or [Sell/Short] to place the order.

• Trade Size: The total quantity you choose to buy or sell. The TWAP strategy aims to promote execution to achieve the target trade size. The minimum trade size allowed for TWAP orders is set at the equivalent of 1,000 USD in notional value.
• Total Duration: Select the target execution period for the TWAP strategy. The minimum duration is 5 minutes, and the maximum is 24 hours.

4. Review your order details and click [Confirm].

Please ensure that your Futures wallet has sufficient margin balance. If any TWAP order fails to meet margin requirements, your TWAP strategy will be terminated.

Please note the following margin check rules for TWAP orders:

• Reduction-only orders will not be subject to margin checks
• Cost = (Total Quantity × Latest Price) / Leverage
• If "Cost < Available Balance for Orders", the margin check is passed

*Available balance for orders refers to the available margin for opening positions.

How to View Your TWAP Orders

You can view active TWAP orders in the strategy overview panel under the [Active] section, including the average execution price, strategy duration, strategy status, and total size. You can also monitor order progress under the [Execution Percentage] column to see the percentage of the total amount that has been executed.

To manually terminate an active TWAP order, click [Cancel] under the [Actions] column.

To view all TWAP trading history, navigate to the [History] tab in the strategy overview panel.

How to Set Up a TWAP Strategy on Mobile App

1. Go to [Contracts] and select [TWAP] from the order dropdown menu.

2. If you are new to TWAP trading, it is recommended that you click the [i] icon next to [TWAP] to read the TWAP guide before creating a strategy.

3. Select your desired trading pair or contract (for example, BTCBUSD) and enter your order details, including trade direction (buy or sell), trade size, and execution duration.

After setting all necessary parameters, click [Buy] or [Sell] to place the order.

• Trade Size: The total quantity you choose to buy or sell. The TWAP strategy aims to promote execution to achieve the target trade size. The minimum trade size allowed is set at the equivalent of 1,000 USD in notional value.
• Total Duration: Select the target execution period for the TWAP strategy. The minimum duration is 5 minutes, and the maximum is 24 hours.

4. Review your order details and click [Confirm Purchase] or [Confirm Sale].

Please ensure that your Futures wallet has sufficient margin balance. If any TWAP order fails to meet margin requirements, your TWAP strategy will be terminated.

Please note the following margin check rules for TWAP orders:

• Reduction-only orders will not be subject to margin checks
• Cost = (Total Quantity × Latest Price) / Leverage
• If "Cost < Available Balance for Orders", the check is passed

*Available balance for orders refers to the available margin for opening positions.

How to View Your TWAP Orders on Mobile App

You can view active TWAP orders in the trading panel under the [TWAP Orders] tab, including the average execution price, strategy duration, strategy status, and total size.

Click [View] on the order under the [TWAP Details] tab to see more detailed information.

Click [Trades] to view details of different trades within the TWAP order.

You can also monitor the completion status of TWAP orders in the [TWAP] and [TWAP Details] tabs of the trading panel. You will see the execution ratio.

To manually terminate an active TWAP order, click [Cancel] – [Confirm].

To view all TWAP trading history, navigate to the [TWAP History] tab in the [Futures History] panel.

Important Notes and Limitations

• TWAP orders support USDT-margined contracts and can be used with cross margin mode. However, if your account uses isolated margin mode, you cannot use TWAP strategy.
• For quarterly contracts, TWAP orders must end one hour before the contract settlement time. For example, if you create a TWAP order at 07:00 with a duration of 4 hours, the order will end at 11:00. Note that TWAP strategies will automatically pause during system maintenance and resume after maintenance ends.
• TWAP orders support a maximum of 30 simultaneous active orders per account. You can place multiple TWAP orders for the same trading pair.
• Trade details will only display after all TWAP orders are fully executed. The system will only show partially completed orders. You can view the trade quantity, average trade price, and trading fees.
• TWAP orders are not guaranteed to execute. The system will attempt to execute orders as much as possible, but execution depends on market liquidity and volatility.
• Manual trading, order cancellation, or position closing on the same contract or trading pair in the USDT trading interface will not affect the total size of TWAP orders.

FAQ

What is TWAP Strategy and How Does It Differ from VWAP (Volume-Weighted Average Price)?

TWAP (Time-Weighted Average Price) splits large orders into smaller batches over fixed time intervals to minimize market impact. VWAP (Volume-Weighted Average Price) calculates the weighted average of prices based on trading volume. Key difference: TWAP focuses on time-based execution, while VWAP emphasizes volume-weighted pricing.

How does TWAP trading strategy work? How does it split large orders for execution?

TWAP strategy divides large orders into smaller portions executed at fixed time intervals, minimizing market impact. It calculates time-weighted average price across execution periods, providing better execution pricing than placing large single orders.

What are the advantages and disadvantages of TWAP strategy? When should it be used?

TWAP disperses trading across time to minimize market impact and avoid price slippage. Advantages include stable execution and reduced volatility effects. Disadvantages include slower fill times and potential missed price opportunities. Use TWAP for large orders to avoid market disruption and achieve better average prices.

How is TWAP strategy applied in actual trading? What conditions and tools are needed?

TWAP strategy requires quantitative trading platforms, real-time market data feeds, and programming capabilities. Key conditions include high-frequency trading infrastructure, low-latency connections, and automated execution algorithms to divide large orders into smaller portions distributed across time periods.

Can TWAP strategy help reduce market impact costs? What is the actual effect?

Yes, TWAP strategy effectively reduces market impact costs by splitting large orders over time. It minimizes price slippage and lowers execution costs significantly, especially for substantial trading volumes.

How to calculate and evaluate the execution efficiency of TWAP strategy?

Evaluate TWAP efficiency by comparing actual execution cost against the volume-weighted average price (VWAP) benchmark. Measure execution time, market impact, and order distribution uniformity. Lower slippage and faster completion with minimal price deviation indicate superior efficiency. Key metrics include total transaction cost and time-weighted performance against market conditions.