The Volume Weighted Average Price (VWAP) is a trading benchmark that represents the average price a security has traded at throughout the day, weighted by volume. Unlike a simple average of prices, VWAP gives more weight to price levels where more shares changed hands, making it a more accurate reflection of the true average transaction price.

The formula is: VWAP = Sum(Price x Volume) / Sum(Volume). For each time interval, the price is multiplied by the volume traded, these products are summed, and then divided by the total volume. The result is a single price that reflects where the majority of trading activity occurred.

Institutional traders use VWAP as a benchmark to evaluate execution quality. If a buy order is filled below VWAP, it is considered a good execution. Day traders use VWAP as a dynamic support and resistance level: prices above VWAP suggest bullish sentiment, while prices below VWAP indicate bearish pressure. VWAP resets at the start of each trading session and is most commonly used for intraday analysis.