Volume-Weighted Average Price (VWAP)
The average price of a security weighted by trading volume, used as a benchmark for execution quality.
What is VWAP?
Volume-Weighted Average Price (VWAP) is the average price at which a security has traded throughout the day, calculated by dividing total dollar trading volume by total share volume over a specified period. VWAP is widely used as a trading benchmark—institutional investors compare their execution price to VWAP to assess whether they achieved favorable fills relative to the day's overall trading activity. As an execution strategy, VWAP algorithms distribute a large order in proportion to forecasted intraday volume patterns, concentrating trades during high-volume periods such as the open and close. VWAP resets at the start of each new trading session and is used primarily for intraday analysis. Technically, a price above VWAP is considered bullish intraday momentum; a price below is considered bearish, and some traders use VWAP as a dynamic support or resistance level.
Example
A mutual fund manager who bought 200,000 shares of Tesla at an average execution price of $248.50 compares the fill to that day's VWAP of $247.90. The $0.60 per-share unfavorable deviation, multiplied by 200,000 shares, means the fund paid $120,000 more than the day's volume-weighted benchmark.
Source: Investopedia — VWAP