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VWAP Benchmark

A volume-weighted average price (VWAP) is a proxy for fair market value. It is given by:

VWAP PnLbp = -1 × side × [(Pavg – VWAP)/VWAP] × 104bp

Where PnLbp is the profit and loss metric, Pavg is average price (average execution price of the order), side is a trade side indicator (1 if buy and -1 if sell), and 104bp is the basis point convertor.

VWAP benchmark allows traders to compare their execution prices with fair market prices. A positive value indicates overperformance and a negative value reflects underperformance.


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