Which of the following is an advantage of using VWAP?

Using the Volume Weighted Average Price (VWAP) has several advantages, and one strong point is its ease of computation and understanding. VWAP is calculated by taking the total value of traded shares and dividing it by the total volume of shares traded over a specific time period. This straightforward formula makes it accessible for traders and analysts to compute and interpret.

The intuitive nature of VWAP allows market participants to use it effectively as a benchmark. For instance, traders can gauge their performance relative to VWAP, assisting them in making decisions about buying or selling positions depending on whether the current price is above or below the VWAP.

The other options present some attributes that are either overstated or not characteristics of VWAP. For example, VWAP does not account for all types of transaction costs, as it primarily focuses on price and volume. Additionally, while VWAP can act as a guide for expected execution prices, it does not provide a guaranteed execution price, as market conditions and liquidity can cause actual transaction prices to vary significantly. Lastly, VWAP does not precisely reflect all market conditions since it may lag behind real-time market movements, especially during significant price volatility. Hence, the simplicity and clarity of VWAP's calculation process stands out as a primary advantage.