Glossary · Execution
VWAP
Also: volume-weighted average price, VWAP algorithm
Published
VWAP — VWAP, or volume-weighted average price, is the average price of an asset over a period weighted by the volume traded at each price, used as a benchmark for execution quality and as an algorithm that paces an order in proportion to expected market volume so that its fills track the benchmark.
The Benchmark
VWAP over a window is the total value traded divided by the total quantity traded. An order that executes at VWAP participated in the market at the same average price as everyone else during that window, which makes it a common yardstick for desks that must show they traded in line with the market rather than better or worse than it.
The Algorithm
A VWAP algorithm forecasts the volume profile of the window from historical patterns and sends clips in proportion to it, trading more when the market is busier. In digital assets, volume profiles vary by venue, weekday, and the overlap of trading sessions across time zones, so forecasts are noisier than in equities.
VWAP or TWAP
TWAP trades evenly by time; VWAP trades in proportion to volume. VWAP reduces impact by hiding in periods of activity but depends on the forecast; TWAP is simpler and more predictable. Neither transfers the market risk of the window to anyone else, which is what a block executed by request for quote does.