TWAP Strategy: Execute trades intelligently and in a controlled manner

The TWAP (Time-Weighted Average Price) strategy is the ideal solution for those who need to execute large-volume trades without causing excessive market impact. By breaking a significant order into multiple smaller trades and executing them periodically, TWAP allows traders to obtain balanced execution prices that reflect current market conditions. This methodology is especially valuable for financial institutions, hedge funds, and investors seeking to maintain full control over their operations while minimizing risks associated with unexpected volatility.

How does TWAP actually work?

The TWAP algorithm automatically calculates the optimal times to execute each suborder based on your customized settings. The system analyzes predefined parameters and issues fractional orders at regular intervals until the total volume is reached or the maximum time is exceeded.

The key to its operation lies in its flexibility: you define how long the strategy will run (from 5 minutes up to 24 hours), how frequently suborders will be placed (between 5 and 120 seconds), and how volumes will be distributed. TWAP handles the rest, ensuring each trade occurs at the time determined by the algorithm.

In addition to automatic executions, the system offers advanced controls: you can set a trigger price that activates the strategy only when the market reaches a certain level, or a stop price that automatically halts the strategy if the quote hits a specified value.

Key parameters to configure your strategy

Each parameter in a TWAP strategy serves a specific function in controlling your execution:

Total volume: The full amount of assets you want to break down and execute via TWAP. This figure is automatically divided into smaller suborders.

Execution duration: Defines the total period during which the strategy remains active. You can select any duration between 5 minutes and 24 hours. During this time, the algorithm sends suborders at regular intervals until the total volume is completed or the time expires. Important note: in highly volatile market conditions, full execution is not guaranteed.

Sending frequency: Sets the time interval between each suborder. The default is 30 seconds, but you can fully customize it according to your operational needs.

Size of each suborder: Defines how much volume will be executed in each individual trade. If you enable the “random order” function, each suborder will automatically vary by ±20% relative to the specified size, always staying within the maximum order limits set by the platform.

Random order: This optional feature introduces variability in the size of each suborder (±20%), helping to disguise the execution pattern and prevent other traders from detecting your strategies.

Execution type: You have two main options. Market orders execute immediately at the available market price. Limit orders are placed at a configurable distance from the best bid (for buys) or best ask (for sells), and can be executed as maker or taker depending on market movement.

For limit orders:

• Limit price (Buy) = Best ask - set distance (or Best ask × (1 - Distance%))
• Limit price (Sell) = Best bid + set distance (or Best bid × (1 + Distance%))

Activation price: The TWAP strategy remains inactive until the market price reaches this preset level.

Stop price: If the market reaches this level, the TWAP strategy will automatically cancel, regardless of whether the total volume has been completed.

Practical example: Executing 96 BTC

To understand how a TWAP strategy executes in practice, consider this scenario: you decide to buy 96 BTC with the following parameters:

• Total volume: 96 BTC
• Duration: 4 hours
• Frequency: 30 seconds between each suborder
• Random order: disabled
• Type: Market order
• Activation price: $100,000
• Stop price: $110,000

The execution process would be as follows:

Once the price hits $100,000, the strategy activates. The system converts 4 hours into 14,400 seconds. With a 30-second frequency, the algorithm divides your purchase into 480 suborders (14,400 ÷ 30). This means every 30 seconds, the system will execute a market order for 0.2 BTC (96 ÷ 480).

The strategy will continue executing over the full 4 hours unless one of these exit conditions occurs:

• The entire 96 BTC is purchased
• The 4-hour period ends
• The market price reaches $110,000 (stop price)

This approach ensures a uniform distribution of your purchase, reducing the risk that a single price movement will impact your entire operation.

Operational limits and restrictions

The platform enforces specific limits to ensure fair and stable operations:

Number of concurrent strategies: Each account can run up to 20 TWAP strategies simultaneously. For a specific trading pair, the maximum is 10 concurrent TWAP strategies.

Frequency range: Suborders can be issued at intervals from a minimum of 5 seconds up to a maximum of 120 seconds.

Minimum and maximum sizes: Each suborder must comply with the order limits specified in spot trading rules or derivatives parameters. For spot trading, check the specific limits for the pair. For futures and perpetuals, the maximum size of each suborder is half the maximum order size indicated in the platform parameters (e.g., if BTCUSDT has a max of 100 BTC, your suborders cannot exceed 50 BTC).

Minimum total volume: Calculated as: Minimum total volume for TWAP = max( theoretical minimum value × number of suborders / last price × 1.1; minimum order size × number of suborders)

Failure handling: If a suborder fails to execute fully under exceptional conditions, the system attempts to automatically reallocate it. If it fails again, it is canceled, and the algorithm waits for the next scheduled suborder. The full TWAP strategy is only canceled if specific conditions are met.

Balance requirements: Your account must have sufficient balance when each suborder executes. TWAP does not reserve margin in advance; insufficient funds will result in cancellation. Closing orders (reducing positions only) do not require margin.

Automatic cancellation: The TWAP strategy cancels automatically if: (a) there is insufficient balance to complete an order, (b) you change position mode, © position value exceeds risk limits, (d) you exceed open interest limits, or (e) the strategy has been running for more than 7 days.

Step-by-step setup of your TWAP strategy

Configuring a TWAP strategy is straightforward and involves just three main steps:

Step 1 - Access the tool: In the trading interface, locate the “Tools” button within the order area. A dropdown menu will open where you can select “TWAP” from the available options.

Step 2 - Enter parameters: Fill out the form with all your customized parameters: total volume, execution duration, frequency, order type, activation price, and stop price. Ensure all values are within operational limits.

Step 3 - Confirm and activate: Carefully review all entered parameters. Once you confirm that the information is correct, click “Confirm” to activate your TWAP strategy. The system will start monitoring the activation price.

Advanced management: Finalize and analyze your strategy

Once your TWAP strategy is active, you can monitor and terminate it from the positions tab.

To view live details: In the “Positions” section, click “Tools” and select “TWAP.” All details will be displayed: executed volume versus total volume, average execution price, set price limits, and more operational information.

To stop the strategy: Simply click the “Finalize” button to cancel your TWAP at any time. Orders already executed will remain in history, but no new suborders will be issued.

History analysis: To review the full performance of past TWAP strategies, go to “Tools History” and filter by “TWAP” as the tool type. Click “Details” to inspect each executed suborder. The order history tags all TWAP operations with “TWAP” in the order type column, allowing you to analyze your execution and optimize future strategies.

The TWAP strategy represents a transformation in how modern traders execute large-volume trades, combining intelligent automation with full control over critical parameters to achieve optimal executions in any market condition.