What Is a Time-Weighted Strategy?
A time-weighted strategy is an algorithmic approach designed to execute large-volume trades by splitting them into smaller, timed orders. This minimizes market impact and avoids significant price fluctuations. Here’s how it works:
- Order Splitting: Large orders are divided into smaller sub-orders.
- Timed Execution: Sub-orders are triggered at user-defined intervals (e.g., every 20 seconds).
- Dynamic Pricing: Each sub-order’s price is calculated based on the current best bid/ask price and a user-set price distance (e.g., 1% better than the market price).
- Immediate-or-Cancel (IOC) Logic: Unfilled portions of sub-orders are automatically canceled to maintain efficiency.
👉 Explore time-weighted strategies in action
Step-by-Step Example
1. Parameter Configuration
A trader aims to buy BTC contracts below $10,500 while minimizing market disruption. Their time-weighted settings:
| Parameter | Value |
|---|---|
| Price Improvement | 1% better than market |
| Limit Price | $10,500 |
| Time Interval | 20 seconds |
| Order Size | 500 contracts |
| Total Order Volume | 10,000 contracts |
2. Strategy Execution
- Price Calculation:
- Current best bid: $10,029.99
-
Max buy price: $10,029.99 × (1 + 1%) = $10,130.29
-
Order Size Adjustment:
- Total eligible sell orders: 775 contracts
- Random multiplier (0.5–1): 63%
-
Sub-order size: 775 × 63% ≈ 488 contracts (within the 500-contract limit)
-
Order Placement:
- Sub-order: 488 contracts at $10,130.29 (IOC)
-
Unfilled contracts are canceled instantly.
-
Continuation Rules:
- Subsequent orders repeat at randomized intervals (10–20 seconds).
- Stops if:
- Total filled volume reaches 10,000 contracts.
- Market price exceeds $10,500 (resumes if price drops below).
Key Features and Best Practices
1. Advantages
- Reduced Slippage: Smaller orders prevent large price movements.
- Cost Efficiency: Avoids paying excessive premiums by leveraging price improvement.
- Automation: Eliminates manual order placement.
2. When to Use
- High-liquidity markets (e.g., BTC/USDT).
- Large-volume trades where market impact is a concern.
👉 Optimize your trades with time-weighted orders
Frequently Asked Questions (FAQs)
Q1: How does the random multiplier affect order size?
The multiplier (0.5–1) introduces variability to mimic natural trading patterns, preventing detection by other algorithms.
Q2: What happens if the market price exceeds my limit price?
The strategy pauses until the price falls back below your limit, ensuring cost discipline.
Q3: Can I adjust parameters mid-strategy?
No—parameters are locked once the strategy starts. Plan carefully before execution.
Q4: Is this suitable for low-liquidity assets?
Not recommended. Thin order books may lead to partial fills or higher slippage.
Q5: How is the price improvement calculated?
It’s a percentage adjustment from the current best bid/ask (e.g., 1% better than market).