IntroductionIn 1988, Logue stated that every transaction cost includes at least two components, one is the explicit cost that can be easily measured, such as commission; another is the implicit cost which cannot be directly estimated. (Louge, 1988) Market impact cost is an example to illustrate the cost involved, which causes concern in transaction costs. From that point on, how to measure the transaction cost became an important question for the economic and financial sector. (Louge, 1988) In Logue's research, he wanted to establish an approach to estimating the cost of market impact, based on a reference trading price. Using the actual trading price and 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 demonstrate his discovery. However, we cannot ignore the shortcomings of VWAP, including the fact that it never considers opportunity cost and will be less effective in a less liquid market. The purpose of this report is to use VWAP (Volume Weight Average Model) to evaluate the reference price of two stocks: BTA and YLC and calculate the cost of market impact on a practical day. The report will critique 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 adopted strategy involves brokers splitting orders as small as possible and trying to trade the shares frequently. Below graphs 1 and 2 illustrate the trading volume for each operation respectively. Chart 1 Chart 2 Before the trade was executed, the 5-day trading data had already been processed and the historical ratio of trading volume per hour was obtained. According to the VWAP formula, the 50,000 shares were divided into 6 segments, each accounting for one hour in the trading day. The trading volume would follow the ratio in different sections. Table 1VWAP of the experiment Effective average trade price Execution cost Execution cost*LYC $0.546977 $0.548 $0.548 1 cent 0.187% BTA $2.236223 $2.223 $1.3 cents 0.594%*The ​​cost of execution it is the percentage of the difference between the price and the reference price. In the entire execution, brokers sold 50,000 shares of BTA in the first round and the VWAP on that day was $2.236223 per share. However, compared to the average actual trade price of $2,223, the estimated VWAP is higher than the actual price $0.