It is the ratio of the value traded to total volume traded over a particular time horizon.
(June 2012). In finance, volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price at which a stock is traded over the trading horizon. VWAP is often used as a trading benchmark by investors who aim to be as passive as possible in their execution. Many pension funds, and some mutual funds, fall into this category. The weighted average cost per unit is therefore $257.78 ($116,000 ÷ 450 units.). The ending inventory valuation is $45,112 (175 units × $257.78 weighted average cost), while the cost of goods sold valuation is $70,890 (275 units × $257.78 weighted average cost). The sum of these two amounts (less a rounding error) equals the $116,000 total actual cost of all purchases and beginning inventory.  A security average that is weighted by the market price of each security included in the average. Thus, securities that have high market prices tend to be more heavily weighted and to have more influence on changes in a price-weighted average. The Dow Jones Averages are examples of price-weighted averages. Compare market-value-weighted average. Introduction. Volume-Weighted Average Price (VWAP) is exactly what it sounds like: the average price weighted by volume. VWAP equals the dollar value of all trading periods divided by the total trading volume for the current day. The example above shows 1-minute VWAP for the first 30 minutes of trading in IBM. Dividing cumulative price-volume by cumulative volume produces a price level that is adjusted (weighted) by volume. The first VWAP value is always the typical price because volume is equal in the numerator and the denominator. Calculating Volume Weighted Average Price. Volume weighted average price, or VWAP, is the average value of a stock traded over the course of a set time horizon, which is typically one day. A trading benchmark used especially in pension plans. VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day. From Wikipedia, the free encyclopedia. In finance, volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price at which a stock is traded over the trading horizon. VWAP is often used as a trading benchmark by investors who aim to be as passive as possible in their execution. Many pension funds, and some mutual funds, fall into this category. BREAKING DOWN 'Price-Weighted Index'. For example, assume that an index contains only two stocks, one priced at $1 and one priced at $10. The $10 stock is weighted nine times higher than the $1 stock. Overall, this means that this index is composed of 90% of the $10 stocks and 10% of $1 stock. DEFINITION of 'Volume Weighted Average Price-VWAP'. A trading benchmark used especially in pension plans. VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day. Next Up Average weighted price is computed for most bond funds by weighting the price of each bond by its relative size in the portfolio.  The volume weighted average price is often used in the stock market. The volume weighted average price measures the mean cost of your stock investments when multiple purchases are made at different prices. If you were to simply average the different prices paid, you wouldn't be accounting for the fact that different quantities were purchased at different prices. Step 1. Multiply the number of shares purchased at a particular price by that price to find the amount you paid for each purchase. For example, if you purchased 100 shares of a stock at $50 and 200 shares at $65, multiply 100 by $50 to get $5,000 and 200 by $65 to get $13,000.
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weighted average price