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Volume-weighted average price (view source)
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In finance, [[volume-weighted average price]] ([[VWAP]]) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price a stock traded at over the trading horizon. | {{a|eqderiv|}}In finance, [[volume-weighted average price]] ([[VWAP]]) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price a stock traded at over the trading horizon. | ||
[[VWAP]] is often used as a trading benchmark by investors who aim to be as passive as possible in their execution. Many [[pension funds]], and some [[mutual funds]], fall into this category. The aim of using a [[VWAP]] trading target is to ensure that the trader executing the order does so in-line with volume on the market. | [[VWAP]] is often used as a trading benchmark by investors who aim to be as passive as possible in their execution. Many [[pension funds]], and some [[mutual funds]], fall into this category. The aim of using a [[VWAP]] trading target is to ensure that the trader executing the order does so in-line with volume on the market. | ||
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[[VWAP]] is often used in [[algorithmic trading]]. Indeed, a broker may guarantee execution of an order at the VWAP and have a computer program enter the orders into the market in order to earn the trader's commission and create P&L. This is called a guaranteed VWAP execution. The broker can also trade in a best effort way and answer to the client the realized price. This is called a VWAP target execution; it incurs more dispersion in the answered price compared to the VWAP price for the client but a lower received/paid commission. Trading algorithms that use VWAP as a target belong to a class of algorithms known as volume participation algorithms. | [[VWAP]] is often used in [[algorithmic trading]]. Indeed, a broker may guarantee execution of an order at the VWAP and have a computer program enter the orders into the market in order to earn the trader's commission and create P&L. This is called a guaranteed VWAP execution. The broker can also trade in a best effort way and answer to the client the realized price. This is called a VWAP target execution; it incurs more dispersion in the answered price compared to the VWAP price for the client but a lower received/paid commission. Trading algorithms that use VWAP as a target belong to a class of algorithms known as volume participation algorithms. | ||
{{Vwapadjustment}} | {{Vwapadjustment}} | ||
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*[[Equity Derivatives Anatomy]] | *[[Equity Derivatives Anatomy]] | ||
*{{eqderivprov|Final Price}} | *{{eqderivprov|Final Price}} | ||
*[http://en.wikipedia.org/wiki/Volume-weighted_average_price Wikipedia on volume-weighted average price] | *[http://en.wikipedia.org/wiki/Volume-weighted_average_price Wikipedia on volume-weighted average price] | ||