Time-weighted average price (TWAP) is a price average weighted by time rather than trading volume. The same acronym also describes an algorithmic execution strategy that distributes a larger order over a chosen period.
Calculating the benchmark
If a price remains $10 for one minute and $16 for three minutes, its TWAP across those four minutes is ($10 × 1 + $16 × 3) ÷ 4 = $14.50. Equally spaced price samples can approximate this average, but the data source and sampling method matter. VWAP instead weights observations by traded volume.
Scheduling a trade
A simple TWAP strategy could divide a 60-token order into 12 equal orders of five tokens over a scheduled hour. Depending on the product, child orders may use market execution or limit prices. Their actual fills determine the realized average execution price; it need not equal the TWAP benchmark.
Trade-offs over time
Spreading execution may reduce immediate market impact but leaves the remaining quantity exposed to later price changes. Insufficient liquidity, price limits, or available balance can prevent completion. Fees and slippage still apply, and neither a favorable average price nor full execution is guaranteed.