Besides Iceberg Orders, What Other Order Types (E.g. TWAP, VWAP) Are Used to Minimize Slippage in Derivatives Trading?
Besides icebergs, traders use algorithmic orders like Time-Weighted Average Price (TWAP) and Volume-Weighted Average Price (VWAP). A TWAP order breaks up a large order into smaller pieces that are executed at regular intervals over a specified time period to minimize market impact.
A VWAP order attempts to execute the order at or near the volume-weighted average price for the day. Both strategies are designed to participate with the market over time rather than demanding immediate liquidity, which reduces the price pressure and thus minimizes slippage.
Glossar
Illiquid Derivatives
Risk ⎊ Trading Illiquid Derivatives carries a heightened liquidity risk, meaning the inability to quickly enter or exit a position without incurring substantial transaction costs or adverse price slippage.
Minimize Slippage
Definition ⎊ Slippage refers to the difference between the expected price of a trade and the actual price at which the order is executed.
Execution Strategy
Framework ⎊ Execution strategy within cryptocurrency, options, and derivatives markets denotes a pre-defined set of instructions governing order placement and management, optimizing for factors like price impact, slippage, and adverse selection.
Order Types
Catalog ⎊ Order types represent the taxonomy of instructions available to a trader specifying how an order should interact with the market, including criteria for price and time priority.
Algorithmic Order Types
Algorithm ⎊ Algorithmic Order Types represent sophisticated, automated trading logic deployed to manage large volume transactions in crypto derivatives and options markets.
Average Price
Calculation ⎊ The Average Price represents the volume-weighted mean execution price of an underlying asset or derivative contract over a specified interval, crucial for settlement procedures in many crypto derivatives markets.