Volume of Trade

What Is Volume of Trade?

Volume of trade is the total quantity of shares or contracts traded for a predetermined security. It very well may be measured on a security traded during a trading day.

Volume of trade or trade volume is measured on stocks, bonds, options contracts, futures contracts, and a wide range of commodities.

Grasping Volume of Trade

Volume of trade measures the total number of shares or contracts executed for a predetermined security during a predefined time span. It incorporates the total number of shares executed between a buyer and seller during a transaction. At the point when securities are all the more actively traded, their trade volume is high, and when securities are less actively traded, their trade volume is low.

Volume will in general be highest close to the market open and close and the beginning of the week and last day of the week.

How Volume of Trade Works

Each market exchange tracks its trading volume and gives volume data. The volumes of trade numbers are reported as frequently as once an hour all through the current trading day. These hourly reported trade volumes are estimates. A trade volume reported by the day's end is likewise an estimate. Last genuine figures are reported the following day.

Investors may likewise follow a security's tick volume, or the number of changes in an agreement's price, as a substitute for trade volume, since prices will generally change all the more regularly with a higher volume of trade.

Volume informs investors concerning the market's activity and liquidity. Higher trade volumes for a predetermined security mean higher liquidity, better order execution, and a more active market for interfacing a buyer and seller. At the point when investors have a reluctant outlook on the bearing of the stock market, futures trading volume will in general increase, which frequently makes options and futures on determined securities trade all the more actively. Volume overall will in general be higher close to the market's opening and closing times, and on Mondays and Fridays. It will in general be lower at noon and before a holiday.

Special Considerations

In recent times, high-frequency traders and index funds have turned into a major supporter of trading volume statistics in U.S. markets. As per a 2017 JPMorgan study, passive investors like ETFs and quantitative investment accounts, which use high-frequency algorithmic trading, were responsible for 60% of overall trading volumes while "fundamental discretionary traders" (or traders who assess the fundamental factors influencing a stock before making an investment) included just 10% of the overall figures.

Traders and Volume of Trade

Traders utilize different trading factors in technical analysis. Trade volume is one of the least complex technical factors investigated by traders while considering market trades. The trade volume during a large price increase or reduction is frequently important for traders as high volumes with price changes can demonstrate specific trading impetuses. High volumes associated with directional changes in price can likewise assist with building up support for the value of a security.

Volume levels can likewise assist traders with settling on indicated times for a transaction. Traders follow the average daily trading volume of a security over short-term and longer-term periods while pursuing choices on trade timing. Traders can likewise utilize several technical analysis indicators that consolidate volume. The Securities and Exchange Commission (SEC) directs the sale of securities by traders. As indicated by Rule 144, sellers can't make security sales surpassing 1% of outstanding shares of a similar class being sold.

Illustration of Volume of Trade

Assume a market comprises of two traders, trader 1 and trader 2. The principal trader purchases 500 shares of stock ABC and sells 250 shares of XYZ. The other trader sells those 500 shares and purchases the 250 shares of stock XYZ to the principal trader. The total volume of trade in the market is 750 (500 shares of ABC + 250 XYZ shares). This is on the grounds that we don't twofold count the volume — when trader 1 purchases 500 ABC shares from trader 2, just 500 shares are counted. In like manner, just 250 shares of XYZ would be recorded on the volume count.

Highlights

• The volume of trade is a measure of the market's activity and liquidity during a set period of time.
• The volume of trade alludes to the total number of shares or contracts exchanged among buyers and sellers of a security during trading hours on a given day.
• Higher trading volumes are viewed as more positive than lower trading volumes since they mean greater liquidity and better order execution.