How Does VWAP Differ from a Simple Arithmetic Average Price?
VWAP is commonly used in algorithmic trading as a benchmark for order execution. Portfolio managers use it to measure the quality of their trade execution, aiming to buy below or sell above the VWAP.
It is also used in calculating performance benchmarks for mutual funds and ETFs, and sometimes as a reference price for large over-the-counter (OTC) block trades.
Glossar
Simple Average
Calculation ⎊ A simple average, also known as a simple moving average (SMA), is a calculation method where all data points within a specified look-back window are summed and divided by the number of data points.
Simple Arithmetic Average
Calculation ⎊ The simple arithmetic average, within cryptocurrency, options trading, and financial derivatives, represents the summation of a series of values divided by the number of those values; it’s a foundational statistical measure used extensively in determining average execution prices, volatility calculations, and benchmark comparisons.