Volume-Weighted Average Price (VWAP)
The average price an asset has traded at throughout the day, based on both volume and price.
Detailed Financial & Mathematical Context
VWAP provides traders and algorithmic execution engines with insight into both trend and liquidity value. Institutional algorithms use VWAP benchmarks to execute large block orders with minimal market impact.
Video Explainer & Key Moments
Learn how institutional algorithmic desks calculate and execute VWAP and TWAP orders to minimize market impact.
Frequently Asked Questions
What is the Volume-Weighted Average Price (VWAP)?
VWAP is a trading benchmark calculating the average price a security traded at throughout a specific session, weighted by the total volume transacted at each price point.
How is VWAP calculated?
VWAP is calculated by summing the dollar volume of each trade (Typical Price multiplied by Volume) throughout the session, and dividing that cumulative dollar total by the cumulative session volume.
How do institutional traders use VWAP?
Institutional asset managers use VWAP execution algorithms to split large block orders into smaller child orders throughout the day, aiming to achieve an average execution price at or better than the market VWAP without pushing the price against themselves.
What is the difference between VWAP and a Simple Moving Average (SMA)?
A Simple Moving Average only considers closing prices over a rolling time window, giving equal weight to low-volume and high-volume periods. VWAP incorporates traded volume, giving greater statistical significance to price levels where heavy institutional participation occurred.
What is an Anchored VWAP (AVWAP)?
An Anchored VWAP starts its cumulative volume and price calculation from a specific timestamp (such as a major market low, earnings announcement, or Federal Reserve policy decision) rather than the standard daily market open.
Related Concepts
Comprehension Check
Why do institutional institutional desks use VWAP benchmark execution algorithms?