IntroductionIn 1988, Logue stated that every transaction cost has at least two elements: one is an explicit cost that can be easily measured, such as commission; another problem concerns the costs involved which cannot be estimated directly. (Louge, 1988) Market impact cost is an example to illustrate the cost involved, which raises transaction cost concerns. Therefore, the way of measuring transaction costs has become a major issue for the economic and financial industry. (Louge, 1988) Regarding Logue's research, he wanted to establish an approach to estimate the cost of market impact, based on a commercial reference price. Using the actual trading price and the reference price, participants are able to measure the cost of market impact. (Louge, 1988) Logue uses the Volume Weight Average Model (VWAP) as a tool to prove his conclusions. However, we cannot ignore the shortcomings of VWAP, including that it never considers opportunity cost and will be less effective in a less liquid market. The objective of this report is to use the Volume Average Weight Model (VWAP) to evaluate the VWAP benchmark price. two stocks - BTA and YLC, and calculate the cost of impact on the market in one day. The report will criticize the risk of this approach and provide some improvements to this model. Has the VWAP been achieved? In this trade execution, two stocks were observed, one is Biota Holdings Limited (BTA), the other is Lynas Corporation Limited (LYC). Both shares are listed on the Australian Security Exchanger (ASX). The strategy executed is that brokers split orders as small as possible and try to trade the stocks frequently. Charts 1 and 2 below illustrate the trading volume for each transaction. Chart 1 Chart 2 Before the trade was executed, the 5-day trading data had already been processed and obtained the historical ratio of trading volume per hour. According to the VWAP formula, the 50,000 stocks were divided into 6 segments, with each part representing one hour on the trading day. Trading volume would follow the ratio in different sections.Experiment Table 1VWAP Average Actual Trade Price Execution Cost Execution Cost*LYC $0.546977 $0.548 1 cent 0.187% BTA $2.236223 $2.223 1, 3 cents 0.594%* Execution cost is the percentage difference between the actual price and the reference price. During the full run, the first round, brokers sold 50,000 shares of BTA and that day's VWAP was $2.236223 per share. However, compared to the average actual trading price of $2,223, the estimated VWAP is higher than the actual price. $0.