What's Time Weighted Average Price (TWAP)?
Time Weighted Average Price (TWAP) is an advanced strategy for trading large orders to reduce its impact on the market price. In practice, it splits a large order into several small orders and executes them within a duration (from a few hours to a day).
The splitting of a large order into a few small orders maximally reduced its impact on the market price. Besides, it also diminishes the trading cost in comparison to buy/sell a large order in the market.
Definitions
1. Order Price
Traders set the entrusted price according to the “price distance” and “proportion” according to the liquidity. Taking buying as an example, at the beginning of the strategy, the entrusted price with a certain price distance/proportion up from the “sell 1” price is used to entrust a small buy order. If not set, it will be executed according to the system default slippage.
2. Activation Price
The activation price is to activate the TWAP strategy. When buying: the market price ≤ activation price, the order is activated. When selling: the market price >= activation price, the order is activated.
Take buying as an example. When the market price ≤ activation price, the TWAP strategy is activated. The entrusted price with a certain price distance/proportion up from the last selling price is used to entrust a small buy order.
Please note that if the price distance is too large, the TWAP strategy may not be triggered promptly. So, traders shall set a proper price distance.
3. Time Interval
When the TWAP strategy is activated, small orders will be entrusted as per the “time interval” pre-setted. Take 5 min time-interval as an example. When the last order is completed, the next order will be entrusted 5 min later.
4. Single Quantity
Single quantity is the “Entrusted amount” of each small order. The single quantity will multiply a random ratio automatically to increase trading privacy. The formula is: Single quantity = Single quantity * random ratio + unfilled amount of the last order Note: the random ratio varies from 0.7 to 1.3.
5. Total Amount
Traders fill in the total amount, which will be splitted into several small orders to entrust in the market by the TWAP strategy.
FAQ
1. What should I do If the duration is reached but the orders are not completely filled?
The unfilled orders will be canceled automatically. Traders shall re-set the TWAP strategy.
2. How many orders can I entrust?
The number of orders is based on your total amount and the duration. The larger the amount and the longer duration, the more orders will be placed.
3. Why are my orders not filled?
Poor liquidity may lead to part of an order not filled. The unfilled part will be entrusted into the next order automatically.
4. What's the difference between the upgraded TWAP and Time Condition?
The TWAP strategy is much easier for users. In Basic Setting, users can just enter the Total Amount and Duration, and the system will execute the strategy automatically and fill the order with the best price fastly. The advanced options offer more customized settings. Users can set price distance or slippage proportion, activation price, time intervals, single quantity, etc. It enables traders to set their own strategies and fill the large deal with efficient cost.
Gate reserves the final right to interpret the product.
