Volume Weighted Average Price (VWAP)
Volume Weighted Average Price (VWAP) is a formula that measures the average price at which a security was traded throughout a given day. It is common for investors to measure the success of their own trading strategies by comparing the price at which they traded a security to the security's volume weighted average price (VWAP). Trading at a better price than the security's VWAP is thought to indicate an above average investment choice.
Because VWAP measures the average trading price over a given day, many investors believe that it represents the price at which a passive trader can be expected to trade a security.
A security's volume weighted average price is calculated by dividing the total dollar amount traded on a security for a given day (dollar volume) by the total number of shares traded during the same day (share volume).
VWAP = dollar volume / share volume
The dollar volume of a security is calculated by multiplying the number of shares times the share price of each trade and combining the total sum of all the trades throughout a given day.
Share volume is defined as the total number of shares traded throughout the day.
The strategies described in this article are for information purposes only, and their use does not guarantee a profit. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security. Investors should fully research any security before making an investment decision. Securities are subject to market fluctuation and may lose value.