Right now, we are witnessing the transition of prop trading companies to a different business model (where they are heavily invested in trader competitions) and their shift towards technologically advanced setups.
The new focus on automation and various tech tools is a positive trend. It enables prop traders to run smoother operations, experience fewer errors and downtime, and provide more security to traders.
Today, we’d like to discuss one of the many solutions that can enrich and empower prop traders and allow them to deliver the best service to their clients.
What is VWAP?
VWAP, or the volume-weighted average price, is a smart way of calculating the average price of an order.
The VWAP determines the average price of the security based on:
- Trading volume
- Price at the moment of trade
This means that the higher the volume, the more influence it has on the VWAP, and this enables us to see the true average price that all market participants paid over a defined period of time.
Who uses VWAP?
Up until recently, the feature was primarily used by:
- Institutional investors
- Algorithmic traders
- Hedge Funds
They would utilise VWAP to identify the average price for:
- Benchmarking purposes
- Trade execution performance analysis
- Identifying entry/exit points for trades
- Trend indicator
- Calculate the minimum, maximum, and average spread
- With VM price execution type for orders based on the depth of the market
