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The ratio of cumulative notional traded to cumulative volume over a defined execution window.
The ratio of cumulative notional traded to cumulative volume over a defined execution window.
VWAP is the standard execution benchmark for institutional orders. Algorithmic execution aims to slice parent orders into child orders such that the average fill price tracks the interval VWAP. The benchmark assumes that historical intraday volume patterns are predictive of the current session's distribution.
Primary benchmark for passive execution algos (VWAP, IS, TWAP).
Inappropriate for urgent or information-driven orders encourages participation at any cost.
Predatory algorithms can detect and trade against predictable VWAP schedules.
Algorithmic trading is the use of computer programs to automate order generation, submission, and execution in financial markets. It spans systematic strategies (where the algorithm decides what to trade), execution algorithms (where the algorithm decides how to trade an existing decision), and high-frequency market-making. The defining feature is that a machine not a human produces and manages the orders.
Market microstructure is the study of how exchange mechanics shape price formation, liquidity, and execution costs. The dominant academic reference is Harris (2003) and O'Hara (1995). The dominant practitioner applications are the design of execution algorithms and the design of market-making strategies, both of which depend on a quantitative model of the order book and its dynamics.