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Volume Weighted Average Price (VWAP)
A trading benchmark used especially in pension plans. VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by number of shares traded) and then dividing by the total shares traded for the day.
The theory is that if the price of a buy trade is lower than the VWAP, it is a good trade. The opposite is true if the price is higher than the VWAP.
How VWAP is used to provide anonymity:
Since VWAP is a volume weighted measure of price, it is thought that trades placed closer to the current VWAP provide more anonymity to traders since many other traders have traded or are trading at the same level.
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