The ratio of the value of securities traded to the total volume traded over a given period of time (usually one day). In other words, it is the dollar amount traded for every transaction (price times shares traded) related to the total shares traded for a specific period of time. It is used to gauge the average price of a security traded at over the period of choice.  A trader’s performance is evaluated by his ability to transact at prices better than the volume-weighted average price over the trading horizon. That is, if the price of an order is better than the volume-weighted average price, the transaction is said to be beneficial (value adding). For example, if a buy order was executed at a price lower than this benchmark, the trade is considered good. Similarly, if a sell order was executed at a price above this benchmark, the trade is considered bad (value destructing).

The volume-weighted average price is also used as the published closing price of a security.