What is VWAP?
VWAP refers to the Volume Weighted Average Price which traders receive when they are filled over multiple tiers of the Depth of Market.

As trades can be filled across multiple tiers, traders will receive an average price based on the amount of liquidity they consume on each available tier.

Example of VWAP calculations:

Trader enters a 3mln sell on EUR/USD using our example DOM rates.

The equation for VWAP works as follows:

Tier 1
1.12939 x 500k = 564,695

Tier 2
1.12938 x 1.5mln = 1,694,070

Tier 3
1.12937 x 1m = 1,129,370

Total VWAP Volume = 3,388,135

Total Requested Volume = 3,000,000

Total VWAP/Total Requested = 1.12938

So the rate which the trader receives for his 3m Sell is the VWAP 1.12938


What is the Depth of Market?
The Depth of Market (DOM) refers to the amount of liquidity which is available to be traded in the Market at a given point in time, the DOM consists of a number of tiers where each tier represents the amount of liquidity available at a particular price.

The further down the DOM you go the wider the spreads will become on each tier as LPs become less willing to take larger trades at tighter spreads. When trading over multiple tiers you trades will be filled at the VWAP price.

What is the Top of Book?
The Top of Book refers to the Best Bid and Best Ask which is available in the market, the Best Bid/Ask will always be the prices displayed on the top tier of the Depth of Market and will be the those at which traders will are executed at first when entering the market.

Some platforms such as Mt4, only show the Top of Book prices and do not show any Depth of Market to traders.

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