# Time-weighted average price

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Average price of a security over a specified time

In finance, **time-weighted average price** (**TWAP**) is the average price of a [security](/source/Security_(finance)) over a specified time.

TWAP is also sometimes used to describe a TWAP card, that is a strategy that will attempt to execute an order and achieve the TWAP or better. A TWAP strategy underpins more sophisticated ways of buying and selling than simply executing orders en masse: for example, dumping a huge number of shares in one block is likely to affect market perceptions, with an adverse effect on the price.[1]

## Use

A TWAP strategy is often used to minimize a large order's impact on the market and result in price improvement.[2] High-volume [traders](/source/Trader_(finance)) use TWAP to execute their orders over a specific time, so they trade to keep the price close to that which reflects the true market price. TWAP orders are a strategy of executing trades evenly over a specified time period. [Volume-weighted average price](/source/Volume-weighted_average_price) (VWAP) balances execution with volume. Regularly, a VWAP trade will buy or sell 40% of a trade in the first half of the day and then the other 60% in the second half of the day. A TWAP trade would most likely execute an even 50/50 volume in the first and second half of the day.[3]

## Formula

TWAP is calculated using the following formula:

- P T W A P = ∑ j P j ⋅ T j ∑ j T j {\displaystyle P_{\mathrm {TWAP} }={\frac {\sum _{j}{P_{j}\cdot T_{j}}}{\sum _{j}{T_{j}}}}\,}

where:

- P T W A P {\displaystyle P_{\mathrm {TWAP} }} is Time Weighted Average Price;

- P j {\displaystyle P_{j}} is the price of security at a time of measurement j {\displaystyle j} ;

- T j {\displaystyle T_{j}} is change of time since previous price measurement j {\displaystyle j} ;

- j {\displaystyle j} is each individual measurement that takes place over the defined period of time.

Increased period of measurements ∑ j T j {\displaystyle \sum _{j}{T_{j}}} results in a less up-to-date price.

## See also

- [Volume-weighted average price](/source/Volume-weighted_average_price)

## References

1. **[^](#cite_ref-1)** ["Wealth AI"](https://www.wealthai.in/). 2024-07-20. Retrieved 2024-08-03.

1. **[^](#cite_ref-2)** ["Time-Weighted Average Price"](https://river.com/learn/terms/t/time-weighted-average-price-twap/). *River Financial*. River Financial Inc. Retrieved 2021-06-25.

1. **[^](#cite_ref-3)** ["Anchored VWAP"](https://school.stockcharts.com/doku.php?id=technical_indicators:anchored_vwap). *StockCharts.com*. Retrieved 2021-04-18.

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