# Day Trading Software VWAP Calculation Differences – Iterative VWAP Ver…

The cumulative VWAP is considered to be the most accurate calculation as it changes with every transaction. The formula is:

The Sum of all transactions (quantity in shares x Price traded) divided by the Cumulative quantity. For example, lets say the stock has 5 trades on the day so far:

\$20.05 1000 shares \$20.06 800 shares \$20.04 100 shares \$20.03 2000 shares \$20.03 3000 shares

The VWAP would be:

{(\$20.05 x 1000) + (\$20.06 x 800) + (\$20.04 x 100) + (\$20.03 x 2000) + (\$20.03 x 3000)} / (1000 + 800 + 100 + 2000 + 3000)

This translates into:

(20050 + 16048 + 2004 + 40060 + 60090) / (6900) = 20.0365. consequently \$20.0365 would be the Cumulative VWAP

The iterative VWAP calculation is sometimes used by software firms as it is easier to continue in the database and prevents the overall software from running slower than optimal speed. It uses the last value of VWAP as the basis for calculating the VWAP on the next trade. Using the same example as above:

1st Iteration: (20.05 x 1000) / 1000 = 20050 / 1000 = \$20.05 2nd Iteration: \$20.05 + {(20.06 – 25.05) x 800)} / (1000 + 800) = 20.0544 3rd Iteration: 20.0544 + {(20.04 – 20.0544) x 100} / (1800 + 100) = 20.0536 4th Iteration: 20.0536 + {(20.03 – 20.0536) x 2000) / (1900 + 2000) = 20.0311 5th Iteration: 20.0311 + {(20.03 – 20.0311) x 3000) / (3900 + 3000) = 20.0306

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