VWAP

Definition of Volume Weighted Average Price

Volume-Weighted Average Price (VWAP) is a trading algorithm based on a pre-computed schedule that is used in the execution of a bigger order to minimize the impact on the market price.

In the book “Algorithmic & Trading DMA” we can read about VWAP that  “As a benchmark, it rapidly became ubiquitous since it gives a fair reflection of market conditions throughout the day and is simple to calculate. This led to algorithms that tracked the VWAP benchmark becoming extremely popular.”

Before diving into the details of VWAP calulations and its appliance as a trading strategy, let’s look at this interesting short video on algorithmic trading in general.