11. Strategic Trading Series — TWAP (Time-Weighted Average Price)

Introduction

When users face large positions, the iceberg strategy can split large orders, hide orders, and reduce slippage. However, orders placed away from the market price may not be fully filled, increasing opportunity costs. If your position is relatively large and you want to fill quickly with relatively low trading costs, placing a direct order may significantly drive up or push down the market price, leading to a sharp increase in trading costs. Is there a strategy that can split large orders, fill quickly, and control trading costs at the same time? Today, we will learn about TWAP orders.

1. What is TWAP (Time-Weighted Average Price)?

TWAP is a strategy that splits large orders and fills them incrementally over time.

When executing large trades, users need to automatically split large orders into multiple smaller orders to avoid overly impacting the market. This strategy triggers orders at intervals set by the user. The order price is calculated based on the current best bid/ask price and the price distance set by the user. Then, small orders are placed to take liquidity from the market.

The characteristics of TWAP are: large order splitting, timed order placement, and slippage reduction. The benefit of this strategy is that it splits large trades into many smaller trades, entering the market incrementally over time to avoid single-order market impact. When the price meets the set conditions, orders can be filled quickly by taking liquidity. These orders use IOC (Immediate Or Cancel) mode — any portion of an order that is not immediately filled will be immediately canceled. For example, if an order quantity is 2 and only 1.6 is filled, the remaining 0.4 will be immediately canceled, minimizing slippage as much as possible.

2. Terminology

How to understand the relevant terms of the strategy?

1. Take Price Better Than Order Book

After splitting, orders will be filled by taking liquidity directly. For a buy order, when the strategy executes, it places the order at a price calculated by adding a certain price distance/ratio above the best bid price. The larger the price distance or ratio, the higher the probability of immediate full execution, but the corresponding cost may also increase.

2. Limit Price for Taking Liquidity

This parameter is key to determining whether the strategy starts running. Taking a buy order as an example, when the market price is below the "limit price," the strategy begins placing small buy orders at a price calculated by adding a certain price distance/ratio above the best bid price. If the limit price is too far from the current price, the strategy may not trigger in time. Therefore, set an appropriate limit price.

3. Order Interval

When the strategy starts running, orders are placed at intervals of the "time period." For example, with a 30-second interval, after the previous order is placed, the next order can only be placed in the next cycle after 30 seconds.

4. Order Quantity per Order

The order quantity per order is the expected fill quantity per order set by the user. The actual order quantity = order quantity × a random number between (0.5, 1).

5. Total Order Quantity

The total order quantity is the total trading volume expected by the user, which is relatively straightforward.

3. Strategy Display

TWAP orders can be used not only for spot trading but also for perpetual contracts, delivery contracts, and leverage trading, making the range of applications very wide. How does the TWAP strategy work?

Taking a buy order as an example, when the market price is above the limit price for taking liquidity, orders are paused;

When the market price falls below the limit price for taking liquidity, the strategy resumes orders, calculating the order price based on the current best bid price and the price distance you set. Then, small orders are placed to take liquidity from the market. When the price remains below the limit price for taking liquidity, orders are placed at timed intervals until the filled quantity equals the total order quantity.

The diagram is as follows:

Taking a sell order as an example, when the market price is below the limit price for taking liquidity, orders are paused; when the market price is above the limit price for taking liquidity, the strategy resumes orders, calculating the order price based on the current best ask price and the price distance you set. Then, small orders are placed to take liquidity from the market. When the price remains above the limit price for taking liquidity, orders are placed at timed intervals until the filled quantity equals the total order quantity. The diagram is as follows:

4. How to Use TWAP Orders

On the app, go to the Trading page in strategy mode, and select TWAP orders from the strategy list. Taking the ETH/USDT perpetual contract as an example, using the TWAP strategy: cross margin 3x leverage, limit price for taking liquidity at $1,250, take price better than order book at 1%, order quantity per order of 2 ETH, order interval of 30 seconds, and total order quantity of 20 ETH.

After the orders are placed successfully, you can view the current positions under [Strategies] - [TWAP Orders] below. Filled positions can be viewed under [Current Positions], and unfilled portions of orders can be viewed under [Current Orders]. You can also enter [Strategy Details] to view the strategy's [Strategy Information], [Fill Records], and other content. This is helpful for understanding how the strategy operates.

5. Notes

1. The limit price for taking liquidity is best set near support/resistance levels. The order book depth at key levels is generally better, which helps minimize slippage when taking liquidity. 2. The order interval should not be too long; otherwise, during periods of high market volatility, you may miss opportunities. However, it should also not be too short, as the order book may not have recovered after the previous order is filled, affecting the next trade. 3. If the trading pair encounters unexpected situations such as trading suspension or delisting during the strategy run, the strategy will automatically stop.

Key Takeaways

Disclaimer

This article may contain product-related content that is not applicable to your region. This article is dedicated to providing general information only and does not accept responsibility for any factual errors or omissions. This article represents the author's personal views only and does not represent OKX's views. This article is not intended to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves high risk and may fluctuate significantly or even become worthless. You should carefully consider whether trading or holding digital assets is appropriate for you based on your financial situation. For questions specific to your circumstances, please consult your legal/tax/investment professional. The information contained in this article (including market data and statistics, where applicable) is for general reference purposes only. While we have taken all reasonable precautions in preparing such data and charts, we do not accept any responsibility for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in full, or excerpts of 100 words or less may be used, provided that such use is non-commercial. Any reproduction or distribution of the full article must prominently state: "This article is copyrighted © 2025 OKX, used with permission." Permitted excerpts must cite the article title and include attribution, for example, "Article Title, [Author Name (if applicable)], © 2025 OKX". Some content may be generated or assisted by artificial intelligence (AI) tools. Derivative works and other uses of this article are not permitted.

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