What Is the Trade-off between Using a Short TWAP Window versus a Long TWAP Window?
A short TWAP window (e.g. 5 minutes) provides a more up-to-date and responsive price, but it is more susceptible to manipulation and flash loan attacks.
A long TWAP window (e.g. 60 minutes) is much more resistant to manipulation, as the attack would need to be sustained for a longer period.
However, a long window means the price is less reactive to legitimate, sudden market movements.
Glossar
Long Twap Window
Execution ⎊ A Long Twap Window, within cryptocurrency and derivatives markets, represents a strategy for executing large orders over an extended period, typically measured in blocks or a defined timeframe, aiming to minimize market impact.
Optimal TWAP Window
Execution ⎊ ⎊ Optimal TWAP Window strategies, within cryptocurrency derivatives, represent a calculated approach to order execution minimizing market impact and information leakage.
Short Twap Window
Execution ⎊ A Short Twap Window, within cryptocurrency and derivatives markets, represents a constrained time interval utilized for Time-Weighted Average Price execution of larger orders, aiming to minimize market impact.
Long Window
Horizon ⎊ A ‘Long Window’ within cryptocurrency derivatives signifies a period extending beyond typical intraday or short-term trading frameworks, often encompassing weeks or months, influencing strategies centered on volatility expectations and structural shifts.
Trade-off
Balance ⎊ In derivatives modeling, this involves the necessary balancing act between maximizing potential yield and managing downside risk exposure through hedging instruments.
TWAP
Algorithm ⎊ Time-Weighted Average Price (TWAP) is an execution algorithm designed to minimize market impact by dividing a large order into smaller pieces and executing them at regular intervals over a specified time period.