New Order Types: TWAP and VWAP

Executing a large buy or sell order all at once can alert the market to your intentions and cause price to move adversely before your order is completely filled. A common solution is to divide your order into smaller parts and submit them over a period of time.

While it’s possible to do this manually, Clear Street now supports automated TWAP and VWAP execution strategies for large orders. Let’s take a closer look at how these strategies work. If you’d like to jump straight to how to use TWAP and VWAP on Clear Street, click here.

TWAP (Time-Weighted Average Price)

A TWAP order breaks a large order into smaller, equal-sized pieces and sends each piece to the market at regular intervals. You choose when your order should start and end, and Clear Street’s TWAP algorithm will automatically choose the size of each piece and the execution interval.

For example, if you want to purchase 10,000 shares, a TWAP order could break that into 20 500-share orders and submit them for execution every 5 minutes.

A TWAP order works best when:

• Volume is choppy or unpredictable. A TWAP order is time-based, so it works your order over the window you set whether volume is high or low. Execution is not guaranteed.
• You need control over your execution timeframe. You set the time window for a TWAP order, and the algorithm works your order across that window. Fills depend on market conditions.

VWAP (Volume-Weighted Average Price)

A VWAP order similarly breaks a large order into smaller pieces, but the pieces aren’t necessarily equal in size. Instead, Clear Street’s VWAP algorithm uses historical volume patterns to match each piece's size to expected trading volume.

For example, if you want to purchase 10,000 shares, a VWAP order could purchase 5,000 shares when volume spikes after market open, then only 2,000 shares during lunch hours, and the remaining 3,000 shares during an hour of high volume before market close.

By default, VWAP orders spread your order over the entire trading day, but you have the option to specify start and end times to limit the window for your trade.

A VWAP order works best when:

• You want to reduce market impact. VWAP orders spread your execution in line with expected volume, which may help reduce how much your order stands out to other market participants. They do not guarantee your order will go unnoticed.
• You’re trading highly liquid assets. An asset must have consistent volume for a VWAP order to work properly. In illiquid markets, a VWAP order can stall when volume dries up, then “catch up” suddenly with a large sub-order when volume returns.
• You're using VWAP as a benchmark. Institutional traders are often judged based on whether their execution price beats the total VWAP for the day. A VWAP order seeks to execute close to the day’s VWAP. Results are not guaranteed.

TWAP / VWAP orders are available now on the Clear Street API, Web App, Mobile Apps, and Omni.

Disclosure

TWAP and VWAP orders do not guarantee a better price, a specific average price, or a full execution. Results depend on market conditions and your chosen time window.

Clear Street routes TWAP and VWAP orders to Fox River Execution Technology, LLC (“Fox River”), an SEC-registered broker-dealer and FINRA and SIPC member. Fox River is a wholly owned subsidiary of Clear Street LLC. Clear Street and its affiliates may benefit financially from this routing, which is a conflict of interest. See our Order Routing Disclosures and Best Execution Policy.