The quantity of shares or contracts that belong to a given security traded on a daily basis
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What is Volume of Trade?
Volume of trade, also known as trading volume, refers to the quantity of shares or contracts that belong to a given security traded on a daily basis. In other words, trading volume provides a measure of the number of shares that are transacted between a given time period.
Trade volume is an indicator of the market activity and liquidity of a given security, e.g., stocks, bonds, futures contracts, options contracts, as well as all varieties of commodities. It indicates that the market is highly active, which means that it is easy for buyers and sellers to communicate and execute transactions. Similarly, when a security is traded less actively, its trade volume is said to be low.
Summary
- Volume of trade, also known as trading volume, refers to the quantity of shares or contracts that belongs to a given security traded on a daily basis.
- Trade volume is said to be high when a given security is traded more actively and vice versa.
- A higher trade volume is representative of better order execution and higher liquidity.
How is the Volume of Trade Expressed?
Every market exchange tracks its trading volume and provides volume data. Volume of trade numbers may be reported as frequently as once every hour throughout one trading day. Trade volumes that are reported on an hourly basis are estimates. Similarly, the volume of trade reported at the end of a trading day is also an estimate. The actual figures are not made available until the following day.
Example of Volume of Trade
Consider a market that is composed of two traders. The first trader, X, purchases 100 shares of stock Alpha and sells 50 shares of stock Beta. The second trader, Y, buys 200 shares and sells 100 shares of the same stock, Gamma, to X.
In such a situation, the total trading volume in the market would be 350. It is because 100 shares of Alpha were traded, 50 shares of Beta were traded, and 200 shares of Gamma were traded.
Trading Volume for Traders
In a situation where there is uncertainty over the future direction of the market among investors, the trading volume of futures contracts tends to increase. As a result, options and futures trading becomes more active.
Several major drivers of the increase in trading volume statistics in markets, especially in the US, include high-frequency traders and index funds. Such passive investors utilize high-frequency algorithmic trading, which is a huge contributor to overall trading volumes in stock markets.
Real traders, who transact in the market based on their own evaluations and expectations of market movements, only make up 10% of the total volume in US markets. The traders utilize trading volume as one of the factors used in their technical analysis while considering market trades.
It proves to be an extremely useful yet simple tool in the situation of large price jumps or drops. In cases of a drastic price increase, a high trade volume can act as a catalyst. When a high trading volume is associated with such changes, faith in the real value of the security tends to get reinforced.
Trade volume is also an important factor for traders when they are making trading decisions. They track a security’s average trading volume on a daily basis over a short term or even a longer-term period for the same. Usually, trading volumes tend to increase towards the beginning and end of a trading day. The same thing occurs on Mondays and Fridays as they mark the beginning and end of the trading week.
The rules and regulations regarding the usage of the volume of trade by financial markets traders are set in the US by the Securities and Exchange Commission (SEC). In the United Kingdom, the Financial Conduct Authority (FCA) performs the function.
Surrogates for Trade Volume
Investors can also track the tick volume of a security, which signifies the number of changes in the price of a contract. It is because as the volume of trade increases, price changes also tend to become more frequent.
Similarly, the dollar value, which determines the total value of the shares that change hands over a specific period of time, can be used to determine the liquidity status of a security.
More Resources
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FAQs
Volume of trade is the total quantity of shares or contracts traded for a specified security. It can be measured on any type of security traded during a trading day. Volume of trade or trade volume is measured on stocks, bonds, options contracts, futures contracts, and all types of commodities.
What does trade volume mean? ›
What is Volume of Trade? Volume of trade, also known as trading volume, refers to the quantity of shares or contracts that belong to a given security traded on a daily basis. In other words, trading volume provides a measure of the number of shares that are transacted between a given time period.
How to calculate volume of trade? ›
Trading volume is calculated by the number of stocks involved in the transaction for a specific period. Example 1. You bought 30 stocks and sold them on the same day. Your trading volume for the day was 60 stocks.
What is the volume of a trade order? ›
The trade-order volume is the daily sum of the trade volumes divided by the sum of the order volumes in percent, for displayed orders.
What is terms of trade volume? ›
The terms of trade measures the volume of imports an economy can receive per unit of exports. It is calculated by the index price of exports over the index price of imports. Terms of trade above 100 are improving, whilst those below 100 are worsening.
What does trading volume tell you? ›
Trading volume, which measures the number of shares traded during a particular time period, can help. While swings in trading volume may not be enough on their own to reveal changes in a trend, they can give you a sense of how much strength there is behind a move.
What is the average volume of a trade? ›
Average Daily Trading Volume (ADTV) is a technical indicator used by investors that refers to the number of shares of a particular stock that, on average, change hands during a single trading day. The average daily trading volume can be calculated for any span of time – five days, 10 days, etc.
What is the volume of a company's trade? ›
The volume of trade refers to the total number of shares or contracts exchanged between buyers and sellers of a security during trading hours on a given day. The volume of trade is a measure of the market's activity and liquidity during a set period of time.
What is a good volume for day trading? ›
Day traders usually want to stick with higher volume stocks, because that means there is more price movement. This is because day traders need to make sure they can enter and exit trades quickly. It is recommended that day traders look for stocks with at least one million in volume.
What is percentage of volume trade? ›
The Percentage of Volume (POV), also called as Participation Rate, is a simple strategy which executes the order quantity as percentage of trade volume of the stock in a given time interval.
Where Can You Find Trading Volume? All stock market exchanges track volumes of stocks. Therefore, information on the volume in the stock market of any particular share is easily accessible. One can look at the exchanges, news websites, third party websites that have stock market information.
What is the volume trading method? ›
It involves plotting the total volume of a security that has been traded at each price level, rather than simply displaying the total volume for the entire trading session. On a volume-by-price chart, each bar represents a specific price level and the height of the bar indicates the volume traded at that level.
How is volume calculated? ›
Height × width × length= volume
If the height, width and length are measured in cm, the answer will be cm³.
What is considered as volume of trade? ›
Trading volume is defined as the number of shares traded in a particular period of time. So, low trading volume can indicate a lack of interest in either buying or selling. That means it could be bullish if low volume occurs in a downtrend.
What is considered a high volume trade? ›
High Volume Stocks and Low Volume Stocks
Meanwhile, low volume stocks are more thinly traded. There's no specific dividing line between the two. However, high volume stocks typically trade at a volume of 500,000 or more shares per day. Low volume stocks would be below that mark.
What is the volume of trade finance? ›
| Report Attribute | Details |
|---|
| Base Year: | 2022 |
| Trade Finance Market Size in 2022: | USD 9.3 trillion |
| Forecast Period: | 2023 to 2032 |
| Forecast Period 2023 to 2032 CAGR: | 3% |
8 more rowsIf there is a lot of volume, there is high interest and activity around the stock, which can be good or bad. It might be due to positive news or adverse developments. High volume means shares change hands often, showing market activity and how easy it is to buy or sell.
What is good volume for day trading? ›
Day traders usually want to stick with higher volume stocks, because that means there is more price movement. This is because day traders need to make sure they can enter and exit trades quickly. It is recommended that day traders look for stocks with at least one million in volume.
What does volume mean in trading view? ›
The Volume indicator is used to measure how much of a given financial asset has traded in a specific period of time. For example, with stocks, volume is measured by the traded shares.
What does on balance volume tell you? ›
Key Takeaways. On-balance volume (OBV) is a simple accumulation-distribution tool that tallies up and down volume, creating a smooth indicator line to predict when major market moves might occur based on changes in relative trading volume.
