TWAP (Time-Weighted Average Price)
Trade MechanicsTWAP is the time-weighted average price over a window, and the execution algorithm that slices orders into equal timed pieces to track it.
Time-weighted average price is the average price of an instrument over a defined window, with every time slice weighted equally regardless of how much volume traded in it. The same abbreviation names the execution algorithm built on that benchmark: a TWAP algo cuts a large order into equal pieces and releases them at regular intervals across the chosen period, aiming to land the overall fill near the window's average price.
Institutions use TWAP execution to reduce market impact when working sizeable orders, or when they must spread activity over a fixed schedule. It differs from VWAP, which weights each price by traded volume and concentrates child orders where the market is busiest. Because its slicing is predictable, TWAP algos often add randomised timing or size variation to make the pattern harder to detect.