TWAT is a strategy widely used by cryptocurrency whales to buy large amounts of coins without affecting the market price, minimizing the impact.

Let's see how it works

If a whale wants to buy 500 bitcoin, making a purchase of that volume would cause the market to react by raising the price by cancelling a large part of the sell orders. The entire market would know that there is a large investor interested in that product. To avoid this effect, What is done is to divide that order into many smaller ones that go unnoticed.

They divide that order into 100 orders of 5 bitcoins. With this we manage to make the purchase without exhausting the liquidity of the currency and, as it is a low amount, the high purchase alarms do not go off.

This order is made at a certain time, for example, every 30 minutes, and in a few days they have managed to buy the 500 bitcoins without altering the market, achieving a weighted average price.

Advantages of TWAP

• Prevents the market from experiencing large price movements.
• We have greater control over the purchase by being able to take advantage of price drops and avoid price increases. We can postpone an order for a few minutes.

Limitations of TWAP

• Since trades are carried out at regular intervals, we are more prone to price peaks and valleys.
• It cannot be used in highly volatile products or those with low trading volume.
• There are algorithmic robots that analyze the purchase orders placed and can identify the TWAP and can operate against it.
• Although it has higher purchasing costs, when carrying out more operations, when we are talking about such high amounts of money, it is more important not to change the price than the costs.

Conclusion

This system can only be used by large investors or institutions. Most investors do not have enough liquidity to do so.

This is not only used in cryptocurrencies, it is also used in other markets such as the stock market, metals, and energy.