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.