Definition
VWAP, or Volume-Weighted Average Price, is a trading benchmark that represents the average price at which an asset has traded during a specific period, with each trade weighted by its volume. It combines both price and traded size, giving more influence to larger transactions than to smaller ones. In crypto markets, VWAP is commonly calculated on intraday intervals, such as a single trading day on a CEX or a defined session.
As a concept, VWAP is used to summarize the typical price level at which most trading activity occurred, rather than a simple arithmetic average of prices. It is often referenced alongside other execution benchmarks like TWAP, which focuses on time rather than volume. VWAP is particularly relevant in markets where trade sizes vary significantly, because it reflects where the bulk of capital actually changed hands.
Context and Usage
VWAP is widely used as a reference point to evaluate trade execution quality and to understand whether trades occurred above or below the market’s volume-weighted average level. On a CEX, institutional and algorithmic traders may monitor VWAP to assess how closely their executions align with the broader flow of trading activity. In this context, VWAP can serve as a neutral benchmark rather than a direct trading signal.
Because VWAP reflects the price level where most volume traded, it is often considered when thinking about potential Slippage relative to a benchmark price. It can also be used in conjunction with tools such as Take-Profit Order logic or leverage-based strategies, where traders want a reference for the prevailing average execution environment. While related to TWAP, which distributes activity evenly over time, VWAP centers on where the heaviest trading actually occurred.