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Market Microstructure & Execution·Execution Algorithms
VWAP, TWAP, and POV
9 min read
Three benchmarks, three slicing rules
Execution algorithms split a large parent order into smaller children to control market impact. The three classics are VWAP (track the volume-weighted average price by slicing along a typical-day's volume profile), TWAP (slice evenly across a chosen window), and POV (target a percentage of real-time market volume). Each has a benchmark and a use case.
Volume-weighted
Targets the day's volume-weighted average price. Slices children to follow the historical intraday volume profile (bigger slices at open and close, smaller at lunch). Best when you want to be 'in the market' at typical participation.