Definition
Time-Weighted Average Price calculates the simple average of prices over a time period, giving equal weight to each price point regardless of volume. TWAP algorithms execute orders evenly over time to achieve this benchmark. Unlike VWAP, TWAP doesn't consider volume, making it simpler but potentially less representative.
Formula
TWAP = Sum of Prices at Each Interval / Number of Intervals
Example
An algorithm splits a 100,000 share order into equal parts over 2 hours, executing every 5 minutes to achieve TWAP.
FAQ
What is TWAP (Time-Weighted Average Price)?
The average price of a security over a specified time period.
How do you calculate TWAP (Time-Weighted Average Price)?
A common formula for TWAP (Time-Weighted Average Price) is: TWAP = Sum of Prices at Each Interval / Number of Intervals
Why is TWAP (Time-Weighted Average Price) important?
TWAP (Time-Weighted Average Price) helps investors evaluate trading mechanics and make more informed decisions.