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When I first started looking into algorithmic trading, I did not approach it as a technical expert or a professional quant. I looked at it as a normal trader trying to understand why big trades often lose money through slippage and why some tools exist to reduce that problem. In my search, I spent time reading how Binance actually handles algo trading in real market conditions, not just how it is explained in theory.

What I found is that algo trading on Binance is less about being fancy and more about solving very practical problems that appear when trade size grows or liquidity becomes thin.

This article is my attempt to explain that research in very simple words, the way I understood it myself.

What Algo Trading Really Means

Algorithmic trading simply means using a computer program to place trades for you instead of clicking buy or sell yourself. You tell the system how you want the trade to happen, and it follows those rules automatically.

On Binance, algo trading is not about guessing prices or predicting the future. It is mainly about how a trade is executed. The goal is to reduce slippage, which is the gap between the price you expect and the price you actually get.

I noticed that Binance focuses on two main algo methods. They are called TWAP and POV.

How TWAP Works in Real Life

TWAP stands for Time Weighted Average Price. When I studied it closely, I understood it like this.

Instead of placing one big order at once, TWAP breaks the order into many small pieces. These small trades are placed evenly over a set amount of time. For example, if I want to buy a large amount of a coin over one hour, TWAP will slowly buy small amounts across that hour.

This approach helps because the market does not suddenly see a huge order. Prices move less, and the trade feels more natural to the market.

However, I also learned that TWAP is not always perfect. If the market is already very liquid, spreading the trade for too long can sometimes make things worse, especially if prices move against you during that time.

How POV Is Different

POV means Percentage of Volume. This method behaves differently from TWAP.

Instead of focusing on time, POV focuses on market activity. You tell the system to trade only a certain percentage of the total market volume. If trading activity is high, the algo trades faster. If activity slows down, the algo also slows down.

In my research, I started to see why POV often performs better for very large trades. It moves with the market instead of fighting it. When volume increases, the algo becomes more active, which helps reduce the visible impact of the trade.

The downside is that POV trades can take much longer to finish. Sometimes they can stretch for many hours, depending on market conditions.

What the Case Studies Were Based On

The examples I studied were not guesses or simulations. They were based on around twenty five thousand real, anonymised Binance algo trades from the past. These trades were compared with normal market orders to see which method caused less slippage.

The key idea used in the studies was something called edge. Edge simply shows whether the algo did better or worse than a normal market order.

A positive edge means the algo helped. A negative edge means it did not.

What I Learned From the Overall Results

When I looked at all trades together, TWAP did not show a big advantage over normal market orders. In fact, it was almost the same. This told me something important. For many situations, especially smaller or liquid trades, TWAP does not magically improve results.

POV was very different. On average, it performed much better than market orders. The improvement was clear, especially when trades were large.

This helped me understand that not all algos are meant for all traders.

Liquid Assets vs Illiquid Assets

Another thing I noticed in the data was how different coins behave.

Bitcoin and Ethereum were treated as liquid assets. Most other coins were treated as illiquid. For liquid coins, market orders already work very well. There is so much volume that prices do not move much when you trade.

Because of this, algo trading on liquid coins sometimes showed little benefit or even small disadvantages. The market simply does not need help absorbing those trades.

Illiquid coins were a different story. Normal market orders caused much more slippage. In these cases, algo trading clearly helped by spreading trades and hiding size.

Why Trade Size Changes Everything

One of the strongest patterns I found was related to trade size.

Small trades did not benefit much from algo trading. Large trades suffered heavy slippage when done as market orders. Some very large trades lost several percent just from execution.

When algos were used for those large trades, especially on illiquid assets, the improvement was massive. In some cases, the benefit reached double digit percentages.

This made it very clear to me that algo trading is mainly built for scale.

TWAP vs POV for Big Trades

When comparing TWAP and POV directly, POV usually performed better for large trades. The reason became obvious once I understood how POV reacts to market volume.

POV speeds up when the market is active and slows down when it is quiet. This helps it blend into the flow of trades. TWAP, on the other hand, keeps trading at the same pace even if the market changes.

However, I also learned that POV trades can take much longer to finish. If time matters to you, TWAP might still be the better option.

Why Configuration Matters More Than People Think

One thing that surprised me was how much settings matter.

In my research, I found that many negative results came from poor configuration. For example, using a very long TWAP duration on a highly liquid coin often caused unnecessary slippage. The trade could have been finished quickly, but instead it dragged on while prices moved.

Another powerful setting was the limit price. When a limit price was used, results improved a lot. The algo simply stopped trading when prices moved too far and resumed later when conditions improved.

This acts like a safety net against sudden volatility.

What All of This Taught Me

After going through all of this, I started to see algo trading more clearly.

Algo orders are not magic. They do not guarantee profit. They are tools designed to solve specific problems.

If you trade small amounts of liquid coins, simple market orders are often enough. If you trade large amounts or illiquid assets, algo trading becomes very valuable.

TWAP works best when time and stability matter. POV works best when size is large and you want to move with the market.

Most importantly, how you configure the algo matters just as much as which algo you choose.

My Final Thoughts

From what I researched, Binance algo trading is built for real market behaviour, not hype. It helps traders reduce slippage, hide large trades, and manage market impact. But it only works well when used for the right situation and set up properly.
Understanding when to use it, and when not to, is what really makes the difference.

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