My friend tells me that when my broker is executing an order of mine (particularly a large one), he should always try to match the VWAP. What is VWAP and is this true?
VWAP is the Volume Weighted Average Price, quoted on live dealing systems for stocks where prices are formulated on an order book system. The VWAP is formed by dividing the value of trades at a particular time by the volume of trades executed over a given time period. The figure effectively provides a price at which the majority of a given day’s trades were executed at. A closing 10 minute VWAP is used to set closing prices on the order book. Whilst it would be ideal if the majority of trades for both individual investors and institutional investors were near or matched VWAP, the sheer size of trades which any institutional investor is likely to deal in gives them a mathematical advantage. Your broker is bound to get best execution for your trade, which means that price is just one of the factors he will bear in mind when trading, along with settlement of the trade, speed of execution and so on.
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- My friend tells me that when my broker is executing an order of mine (particularly a large one), he should always try to match the VWAP. What is VWAP and is this true?
