It stands for volume-weighted average price. It is 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 VWAP over the trading horizon. That is, if the price of an order is better than the VWAP, 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 VWAP is also used as the published closing price of a security.
