# VWAP (volume-weighted average price)

VWAP (volume-weighted average price) is the average price of a stock over a specified trading period, weighted by the number of shares traded at each price.

## What it means

VWAP summarizes where trading took place during a chosen period, giving greater weight to prices at which more shares changed hands. It is a price per share, such as US$50.20, not a percentage. A full-day VWAP uses trades throughout the trading day; an intraday VWAP uses only trades within its stated window. The window matters because adding trades changes the average.

VWAP can also serve as an execution benchmark: a trader can compare an order's average fill price with the market's VWAP over the same period. It does not show whether a stock is fairly valued or what its price will be later.

## How it is calculated

`VWAP = Σ(price_i × volume_i) / Σ(volume_i)`

- `price_i` is the price per share of trade `i`, in US$ per share.
- `volume_i` is the number of shares in trade `i`.
- `Σ` means add across all included trades in the specified period.

Each `price_i × volume_i` is that trade's dollar value. Dividing total dollar value by total shares produces US$ per share. If exact trade data is unavailable, a chart may approximate VWAP using one representative price and the total volume for each interval. That interval-based calculation need not equal trade-level VWAP, particularly when prices vary within an interval. A period with no trades has no calculable VWAP.

## Worked example

Suppose, hypothetically, a stock has only these trades during a chosen window:

| Trade | Price per share | Shares | Trade value |
| --- | ---: | ---: | ---: |
| 1 | US$50.00 | 100 | US$5,000 |
| 2 | US$51.00 | 200 | US$10,200 |
| 3 | US$49.00 | 100 | US$4,900 |

1. Add trade values: US$5,000 + US$10,200 + US$4,900 = US$20,100.
2. Add volumes: 100 + 200 + 100 = 400 shares.
3. Divide: US$20,100 / 400 = **US$50.25 per share**.

The simple average of the three trade prices is US$50.00. VWAP is higher because twice as many shares traded at US$51.00 as at either other price. These round numbers illustrate the calculation, not a typical market result.

## Why it matters before you trade

VWAP provides a reference for evaluating an execution after it happens, but a future period's VWAP is unknown before trading. An order's fill price depends on available liquidity, its size, timing, order type and market conditions. A VWAP-oriented execution strategy may spread an order over a period to reflect expected trading volume; it cannot guarantee a fill at or better than the eventual VWAP.

For a purchase, an average fill below the *same-window* market VWAP looks favorable on that narrow price comparison; for a sale, an average fill above it does. That comparison excludes commissions and may obscure a changed market price, missed fills or the cost of waiting. Compare like-for-like periods and account for the complete execution outcome rather than treating VWAP alone as a measure of trading quality.

## How PreTrAIde uses it

PreTrAIde's stated product facts do **not** say that it calculates VWAP or benchmarks fills against VWAP. Its pre-trade analysis checks a proposed stock basket before any order is placed. The quantitative layer estimates bid-ask spread, participation in daily volume and market impact; the resulting analysis includes an execution strategy and plain-language reasoning. Those estimates address factors relevant to planning an execution, but they are not a VWAP calculation or a promise of a particular fill.

PreTrAIde is decision-support software, not a broker: users place their own trades. It does not receive, transmit or execute orders.

## Common mistakes

- **Using mismatched windows:** A morning fill and a full-day VWAP describe different periods.
- **Confusing VWAP with a simple average:** VWAP weights prices by shares traded, not by the number of trades or chart intervals.
- **Assuming it is executable:** The published average is a benchmark, not an offer to trade at that price.
- **Ignoring incomplete orders:** A favorable price on the filled portion says little about shares that did not fill.
- **Treating one benchmark as total cost:** Spread, market impact, commissions and timing can matter even when a fill compares favorably with VWAP.

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Source: https://pretraide.com/glossary/vwap