TWAP, or the time weighted average price, is a basic mathematical principle that has now found application in cryptocurrency as well. With the rising competition among cryptocurrency investors and traders, they always look for better techniques to invest and arbitrage their digital tokens, and TWAP software, and TWAP charts have come to a lot of help in this regard. Let us understand this in more detail, and see how is a TWAP able to help a trader and why traders use TWAP.
What is a TWAP
The time weighted average price is a tool to break down bigger cryptocurrency orders into smaller pieces, and they execute them sequentially, or parallel as the condition demands. This is done with the basic purpose to deceive the market by very large investors and trading entrepreneurs. Think of a scenario where some golden crown in cryptocurrency surfaces up, and buys a lot of tokens. Of course that would be big market news and would impact upon the value of the token. Now if the same purchase can be split into smaller ones, the TWAP prices shall prevail, and the all the transactions would be carried on smoothly without the market even noticing such big changes at that very moment. TWAP software pieces are also prevalent these days, which have a number of uses to the traders, and the reason why traders use TWAP in the first place. Please note that TWAP is not a concept that is reserved exclusively for cryptocurrency, it can apply to any commodity or item of exchange. Let us look into some of its advantages exclusively to the cryptocurrency niche.
Why Traders Use TWAP
1. In cryptocurrency, the market is very volatile, and it sometimes even changes while a big trade is being implemented. However, when TWAP prices prevail, the market volatility remains untouched or less affected upon.
2. TWAP software helps to trade at enormously high speeds; this is really not possible for stand-alone investors or even teams, manually. For bigger orders, a TWAP becomes a kind of a necessity, and this mainly answers why traders use TWAP.
3. TWAP software pieces these days are very sophisticated. Like the one from executium.com, has also got a risk calculation involved, so it saves the traders from heavy losses alerting them well in advance.
4. The software that a TWAP system uses behaves very passively. It never tends to chase the market price as such.
5. Small volumes of trade are not able to impact at all.
6. It is a very genuine trading system for the trader, because it calculates prices from the time the order is initialized to the time when it gets completed. The formula is: Typical Price = (Open + High +Low + Close)/4
7. TWAP orders are thus averaged on the basis of time, and this is definitely a preference of almost all crypto traders.
How Traders Use TWAP
It is not at all tough to calculate the TWAP prices, or use softwares. But still a proper understand of the concept, and how to twist and apply it to the best way possible, is what we call a real challenge. Traders these days are even employing companies like executium.com for consultation in this regard, as TWAP is something really, really important and crucial