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The arithmetic mean of prices over a defined execution window.
The arithmetic mean of prices over a defined execution window.
TWAP execution slices orders uniformly across time rather than tracking the volume curve. It is preferred when the order flow signal is strong (urgency) or when liquidity is not strongly correlated with volume (e.g., opening and closing auctions, less liquid names).
Simpler than VWAP no volume curve forecast required.
Used as a benchmark for less-liquid instruments and urgent trades.
Higher market impact than VWAP for the same participation rate in liquid names.
Algorithmic trading is the use of computer programs to automate order generation, submission, and execution in financial markets. It spans systematic strategies (where the algorithm decides what to trade), execution algorithms (where the algorithm decides how to trade an existing decision), and high-frequency market-making. The defining feature is that a machine not a human produces and manages the orders.
Market microstructure is the study of how exchange mechanics shape price formation, liquidity, and execution costs. The dominant academic reference is Harris (2003) and O'Hara (1995). The dominant practitioner applications are the design of execution algorithms and the design of market-making strategies, both of which depend on a quantitative model of the order book and its dynamics.