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TWAP / VWAP

#trading

TWAP (Time-Weighted Average Price) and VWAP (Volume-Weighted Average Price) are two ways to measure the "average price" of an asset over a period — TWAP weights every second equally, VWAP weights by how much volume traded at each price.

They get used two ways:

  • As execution algos. Break a big order into slices over time (TWAP) or in proportion to historical volume patterns (VWAP) so it doesn't move the market.
  • As benchmarks. After execution, compare your fills to the period's TWAP/VWAP to judge whether you beat the market average or paid through the nose.

Institutional desks use them to hide large positions — you buy 100k shares over the day without anyone noticing you're a whale.