TWAP, or Time-Weighted Average Price, is a trading strategy used to minimize the impact of large orders on the market. It calculates the average price of an asset over a specific time period. Traders utilize TWAP to spread out their buying or selling activity evenly throughout that period. By breaking a large order into smaller, incremental trades, they aim to reduce volatility and avoid significant price fluctuations. This is especially useful for assets that may lack liquidity.For example, if a trader wants to buy a large amount of a cryptocurrency over an hour, they might divide that order into smaller transactions executed at regular intervals. This helps ensure that the average price paid is close to the market price during that timeframe, rather than experiencing spikes or dips from a single large order. Overall, TWAP can enhance trading efficiency and provide a smoother entry or exit from positions in highly volatile markets.