The term ‘Average Pricing’ denotes the calculation of an asset’s price over a specified period or across multiple execution points, yielding a single representative value. In crypto trading, this mitigates the impact of volatility on large orders, establishing a more stable reference point for valuation and trade reconciliation, particularly in institutional contexts.
Mechanism
A system computes the weighted average of individual trade prices, factoring in the quantity and time of each execution, often across various liquidity venues or during a trading interval. For request-for-quote (RFQ) crypto options, the average price may reflect the mean of received quotes or the volume-weighted average price (VWAP) of filled orders against a benchmark. This computational process relies on a continuous stream of execution data.
Methodology
Average pricing strategies typically employ algorithms like VWAP or TWAP (Time-Weighted Average Price) to distribute large orders over time, reducing market impact and achieving a price close to the market’s average. This approach enhances execution quality by normalizing price fluctuations inherent in crypto markets, providing a transparent and auditable basis for institutional transactions and smart trading systems.
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