Volume Weighted Average Price (VWAP)

Volume Weighted Average Price (VWAP) is the average traded price of an asset over a given period (usually a day) weighted by the total trading volume at the various prices traded throughout the period.

It is usually depicted as a moving average over time. The formula considers both price and volume, giving a good idea of market dynamics, such as how volume levels are affecting price movements for example.

Volume Weighted Average Price VWAP Example
VWAP Example (Yellow Line)

VWAP Benchmark

Given that it is an average of a day’s traded prices, it acts as a benchmark for institutional investors, gauging whether or not the trading instruction has been efficiently executed.

In the US, the majority of trading occurs near the end of the day, as investors attempt to match the moves of a market/asset in a given period, by getting a price fill at (or preferably below) the VWAP on their buy orders.

It is particularly vital for Index funds and other passive investors to get close to the VWAP as failing to do so can lead to them underperforming their chosen Index benchmark.

Trend Guide

It can be used as a trend guide.