VWAP definition

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VWAP stands for volume weighted average price, a trading benchmark that is often used by passive investors. It reflects the ratio of an asset’s price to its total trade volume.

To calculate VWAP, follow the following equation

VWAP = ∑(amount of asset bought * asset price)/total shares bought that day

Traders use VWAP to ensure that all trades match the volume of trades being made in the market. This ensures high liquidity, which VWAP traders believe leads to lower transaction costs.

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