What Is TWAP?
TWAP (Time-Weighted Average Price) is an execution algorithm that splits a large order into equal smaller pieces and executes them at regular time intervals over a specified duration. If you want to buy $1M of BTC over 4 hours, TWAP would execute approximately $4,167 every minute (240 slices in 4 hours).
How TWAP Works
TWAP's goal is to achieve an execution price close to the average price over the execution window, minimizing the impact of any single large order on the market. It's simpler than VWAP (which adjusts slice size based on volume patterns) but effective for markets with relatively consistent volume. Some exchanges and DEXs offer native TWAP order types.
Why It Matters for Traders
TWAP is essential for executing large positions in crypto without moving the market against yourself. A $500,000 market order might create 1-2% slippage, but the same amount executed via TWAP over 2 hours might achieve an average slippage of only 0.1%. The trade-off is execution time — you're exposed to adverse price movement over the full duration.