How it works
Pick a window and a sampling interval. Record the price at each sample point. Average those prices. That is TWAP. As an algorithm, TWAP slices a parent order into equal-time-spaced child orders, executed at regular intervals regardless of intraday volume patterns. This produces a steady, predictable execution footprint.
Example
You want to buy 60,000 shares of a stock over a trading session. A 6-hour TWAP algorithm splits the order into 360 child orders of 167 shares each, executed every minute. The average fill price will be approximately the time-weighted average of the session. If volume is concentrated in the first and last hour (typical for equities), TWAP will fill at worse prices than VWAP because it ignores where liquidity actually was.
Why it matters
TWAP is right when you want to hide order size by spacing execution evenly, regardless of market conditions. It is wrong when you want to participate proportionally in liquidity. Most institutional desks use VWAP for liquid names and TWAP for illiquid ones where volume-weighted slicing would broadcast intent. As a benchmark, TWAP is honest about your time exposure, not your participation.
