Forex trading involves risk. Losses can exceed deposits

VWAP definition

Forex trading involves risk. Losses can exceed deposits

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, you use the following equation:

VWAP = ∑(amount of asset bought x asset price)/total equities 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 usually leads to lower transaction costs.

VWAP is particularly useful when trading large numbers of equities. Attempting to buy a large volume of a single stock on the market would typically artificially increase its price — by using VWAP, traders can ensure that they aren't overinflating the trading volume for the asset they want to buy.

What is TWAP?

TWAP stands for time-weighted average price, and shows the average price of an asset of a set period of time. A simple way of calculating TWAP is to take an asset's low, high and closing prices within a set timeframe, add them all together and divide the total by three. To get fully accurate TWAP, though, you need to average out all the price pips hit by an asset in a certain timeframe.

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