VWAP (Volume-Weighted Average Price)
In simple terms
VWAP is the average price of an asset, adjusted so that prices when lots of people are buying count more than prices when few people are buying. Think of it like calculating your average gas price for the month—a day when you filled up 20 gallons counts more than a day when you only added 2 gallons.
Definition
The average price weighted by volume, used as a benchmark for trade quality.
In depth
VWAP calculates a cumulative average price by dividing the sum of (price × volume) by the total volume traded over a specific period, typically intraday. It serves as a technical benchmark that professional traders and algorithms use to evaluate whether their execution quality was better or worse than the market average. The metric weights prices according to trading volume at each price level, making it less susceptible to manipulation than simple averages. Traders often use VWAP as a reference for optimal execution strategy, comparing their actual fill prices against this volume-weighted benchmark. In automated trading systems, VWAP algorithms dynamically adjust order sizing and timing to minimize the difference between executed price and the computed VWAP.
How does VWAP (Volume-Weighted Average Price) work?
VWAP keeps two running totals from the start of a session. For each trade, or for each bar using its typical price, the calculation multiplies price by the quantity traded and adds that to a cumulative notional total, while adding the quantity itself to a cumulative volume total. Dividing the first by the second gives the volume-weighted average price so far. Larger trades therefore pull the line more than small ones. The totals reset at the session boundary — commonly 00:00 UTC in crypto — or from a chosen starting point in anchored VWAP.
An example
Three trades occur in an illustrative session: 100 units at $10, 300 units at $12, and 100 units at $16. Multiplying and adding gives $1,000 plus $3,600 plus $1,600, or $6,200 of notional, across 500 units traded. VWAP is $6,200 divided by 500, or $12.40. A plain average of the three prices would be about $12.67; the 300-unit block at $12 carries more weight, which is exactly what volume weighting does.
Figures are illustrative only.
What beginners get wrong
- Price sitting above VWAP is frequently taken as a signal to buy; it only states that the session's average trade happened lower.
- Because VWAP resets each session, the first readings of the day rest on a handful of trades and move erratically.
- VWAP is calculated per venue, so two exchanges show different lines for the same pair depending on where the volume actually occurred.
- Applying an intraday VWAP to a position held for months compares an entry against a benchmark that expires at the next session boundary.
Related terms
Part of
What is technical analysis, and how are crypto charts read? — the subject page for technical analysis, with all 29 of its definitions in one place.
Educational only — not financial advice.