Volume Weighted Average Price (VWAP) - AlgoJi

Volume Weighted Average Price (VWAP) is an execution strategy which analyzes stock specific historical volume profile (no. of shares traded at particular price), and trades in slices of Order Quantity with objective to keep the average traded price close to the VWAP. While executing, it adds randomization as per an algorithm to minimize gaming risk. The actual algorithm to achieve vwap is usually proprietary and closely guarded secret.

Example: “Match the vwap for today”- Buy 100,000 shares over the day including Market Open and Close auctions with a volume limit of 20%

When & Why to chose VWAP?

  1. When executing large orders in a given time window
  2. Suitable for high volume stocks with stable volume profile over past one-two weeks. Not that some stocks inherently trade with more volume/price spikes than others; VWAP execution is harder in such stocks
  3. To execute an order totally without limitations on the price band- vwap executes close to the market-determined prices

Strategy Parameters

(Given below are some general parameters to help you decide what is essential for you; the actual strategy parameters will depend upon your broker)

Start Time: Any orders are not sent to market even if the decision logic generates buy/sell signal before Start Time.

End Time: All open orders are completed before End Time irrespective of the market impact

%Volume: The strategy automatically adjusts the participation rate to limit it to the percentage of stocks total traded volume. Example, if the stock trades 100,000 shares in one minute and %Volume is 10, the strategy will trade 10,000 shares in the same minute.

Price Brand: The desired price band for the average traded price.

Would Price: A given price which the strategy will try to better in execution

Aggressive|Neutral|Conservative: a given execution style; in aggressive the strategy will try to compromise other parameters while in Conservative the strategy may not be able to completely fill the order.