VWAP Execution
Volume weighted average price (VWAP) is the weighted average execution price for a given trade based upon multi-tiered levels of liquidity, with each tier having a corresponding price and volume.
This method of execution allows the user trading larger trade sizes to sweep through the tiers and execute with all available prices throughout the various tiers until the order is filled or until all liquidity has been exhausted.
Example
| Tier | Size | Bid Price | Offer Price |
|---|---|---|---|
| 1 | 500,000 | 1.32335 | 1.32350 |
| 2 | 1,000,000 | 1.32340 | 1.32370 |
| 3 | 2,000,000 | 1.32345 | 1.32375 |
| 4 | 3,000,000 | 1.32350 | 1.32380 |
| 5 | 5,000,000 | 1.32355 | 1.32385 |
Given the above ladder a buy trade of 3.5 million would execute through the top 3 price levels (starting at Tier 1) as follows:
- 500,000 at 1.3235
- 1,000,000 at 1.3237
- 2,000,000 at 1.32375
The average price for the total amount is calculated at an average price of 1.3237.
Calculation: ((500,000/3,500,000)*1.3235) + ((1,000,000/3,500,000)*1.3237) + ((2,000,000/3,500,000)*1.32375) = 1.3237