VWAP
VWAP (volume weighted average price) is the average traded price weighted by volume over a time window. It smooths noise and can represent consensus when trading is active.
Definition
VWAP stands for volume weighted average price. It is computed as total traded value divided by total traded volume over a chosen window.
Why it matters
VWAP is useful when you want a consensus estimate that reflects where volume actually traded. Compared to last traded price, VWAP is less sensitive to a single small trade.
Tradeoffs
• VWAP requires trades; if volume is low, it may be unstable.
• Results depend on the chosen time window.
Related
VWAP is one way to define market consensus. Another common proxy is mid price.