When a big deal requires a smart approach: TWAP strategy

Large trading operations often pose a significant challenge for traders—they impact market prices, causing undesirable fluctuations. Instead of placing the entire position in one go, skilled traders divide their orders into smaller parts. That’s exactly what TWAP is for—a method that automates this process and helps achieve a fair market price without sharp jumps. TWAP calculates the optimal timing for placing each small order to minimize market impact and manage risks.

How and Why It Works: The Basics of the Algorithm

TWAP determines entry and exit points based on parameters set by the user. The system works as follows: instead of sending a single 96 BTC order, the algorithm splits this amount into hundreds of smaller orders, which are submitted at clearly defined intervals. This allows traders to avoid sudden price changes and achieve an average execution price that reflects the actual market conditions.

Institutional investors and hedge funds use this algorithm as a standard tool because it reduces execution volatility and enables controlled trading, even with large volumes.

Parameters That Shape Your Strategy

Each TWAP operation is configured with a set of key parameters:

Trade Volume – the total amount of asset you plan to buy or sell through the algorithm.

Duration – from 5 minutes up to 24 hours, determines how long the strategy remains active. During this time, the system places sub-orders regularly until all positions are filled or time runs out. Note: in volatile markets, guaranteed full execution may not be possible.

Interval Between Orders – default 30 seconds, indicates how often the system submits new sub-orders. You can adjust this value as desired.

Size of Each Sub-Order – defines the size of individual positions. If you enable random variations, each order will differ by ±20% from the set value, but the system will still adhere to all other maximum size requirements.

Order Type gives you a choice between two approaches. Market orders are executed instantly at the current market price, while limit orders are placed at a certain distance from the best bid (for buying) or best ask (for selling). The latter can be executed as a regular order or as a liquidity-taking order, depending on market movement.

Limit price calculation:

• For buying: Best bid price − set distance (or Best bid price × (1 − Distance%))
• For selling: Best ask price + set distance (or Best ask price × (1 + Distance%))

Trigger Price (advanced setting) activates the entire algorithm only when the market price reaches your specified level. Stop Price (advanced setting) automatically halts TWAP if the price falls or rises to an undesired level.

Practical Example: How It Looks in Action

Let’s consider a real scenario:

You want to buy 96 BTC over 4 hours. You set these parameters:

• Total amount: 96 BTC
• Duration: 4 hours
• Interval: 30 seconds
• Random variations: off
• Order type: market
• Trigger price: $100,000
• Stop price: $110,000

When the market hits $100,000, the strategy activates. The system converts 4 hours into seconds: 4 × 60 × 60 = 14,400 seconds. During this period, the algorithm divides 96 BTC into 480 individual orders (14,400 ÷ 30 = 480 orders). Every 30 seconds, the system submits a market order of 0.2 BTC (96 ÷ 480).

The TWAP process stops when:

1. All 96 BTC are executed
2. The 4 hours expire
3. The price reaches the stop level of $110,000

whichever occurs first.

Rules of the Game: Restrictions and Requirements

The platform sets certain rules for TWAP operation, which are important to understand:

Number of Active Operations: each account can run up to 20 TWAP strategies simultaneously, but no more than 10 strategies per trading pair.

Minimum Placement Interval: between orders, it cannot be less than 5 seconds or more than 120 seconds.

Order Size: the minimum sub-order size is defined in the Spot Trading Rules; the maximum depends on your account type. For spot trading, the maximum is specified separately. For perpetual and futures trading, each sub-order’s maximum should not exceed half of the maximum allowed size. For example, if BTCUSDT allows a maximum of 100 BTC per order, then each sub-order via TWAP cannot be larger than 50 BTC.

Minimum Total Quantity: calculated by the formula: Max[(Minimum Nominal Value × Number of Sub-Orders ÷ Current Price × 1.1); Minimum Order Size × Number of Sub-Orders]

where Number of Sub-Orders = Duration in seconds ÷ Interval

Important Points During Operation

Repeat Execution: if for some reason TWAP does not fully execute an order, the system will attempt again. If a second attempt is insufficient, the order is canceled, and you will need to wait for the next placement.

Margin Management: the algorithm does not lock margin until the order is executed. However, you must ensure sufficient funds are available on your account to cover the trade after execution; otherwise, the strategy will stop. Orders to close positions do not reserve margin.

Automatic Stop: TWAP halts in these situations:

• Insufficient funds for the next order
• Account position mode has changed
• Position value exceeds risk limits
• Open interest exceeds permissible level
• The strategy has been running for 7 days or more

How to Use TWAP: Step-by-Step

To start a strategy: On the orders tab, click Tools, then select TWAP. Fill in all required parameters, verify the data, and click Confirm.

To stop an operation: Go to the Positions tab, click Tools, then select TWAP. Here you will see all details of the active strategy—executed volume, average execution price, set prices, etc. Click Stop to halt.

To view order history: Open the Tools History section and select TWAP as the algorithm type. Click Details to see all orders executed during this operation. All orders placed via TWAP are marked with a special TWAP label in the Order Type column, making tracking easier.

TWAP remains a powerful tool for those who need to execute large trades without causing sharp market fluctuations. Understanding its parameters and rules allows traders to maximize its effectiveness.