Volume of Trade

What is the Volume of Trade?

The volume of trade is the overall measure of the quantity of securities i.e. shares or contracts which are traded during a particular trading day. In simple words, it means that how many securities have exchanged hands of ownership between buyers and sellers for executing a trade related to bonds, stocks, options, futures contracts and different types of commodities. Higher volume of trade for particular security means there is more liquidity attached; the security has better order execution and has a more available market for connecting buyers with sellers.

Calculation Example

Let us take an example of the New York Stock Exchange to understand the concept. Here typically, we are taking a scenario of 3 stocks which are listed in the markets, and based on these three, we are going to calculate the volume of the trade. Suppose the stocks are of Apple, AT&T, and Verizon. Let us assume the first trader buys 1000 shares of Apple and sells 500 shares of AT&T. The other trader now buys 1000 shares of AT&T and sells 500 shares of Verizon to the first trader. Thus we see the total volume of shares traded in the market on this particular trading day is 2000 (1000 of Apple+ 500 of AT&T+ 500 of Verizon). Thus, the net impact of buying and selling of the respective shares on a particular trading day gives us the volume of the trade.

How it Volume of Trade Expressed?

The volume of trade is expressed as the total number of stocks or contracts which gets exchanged between buyers and sellers of specific security during the trading hours of a trading day. It gives a measure of the activity prevailing in the market and the liquidityLiquidityLiquidity shows the ease of converting the assets or the securities of the company into the cash. Liquidity is the ability of the firm to pay off the current liabilities with the current assets it possesses.read more available. It can help the investor, or the trader decides on specified times related to the transaction to be made. It also acts like the simplest technical indicator. All the market exchanges track this data and present the volume data. The volume of the trade numbers is reported on an hourly basis through the entire trading day. This trade volume, which gets reported on an hourly basis, is termed as estimates. The end figure, which is reported at the end of the day, is also called estimates. The full and final figure for a particular day is only reported on the following day.

The volume of Trade Chart

In trade, volume means the number of units that were transacted in the form of buying or selling of stocks and contracts over a particular frame of time or a trading day. Traders will rely on it a lot because it shows the liquidity level of the asset and how easily can one gets in or out of the stock or contract. Generally, there are two types of volumes, which are as buying volume and selling volume. When volume is high, the stock is very easy to buy and sell, and on the other hand, when the volume is low, it is very difficult to buy or sell the stock. For a successful trade to happen, there must be a buyer and seller. When this is marked on a chart, it is termed as the volume of the trade chart. Generally, it is shown by a bar chart. Volume bars are generally colored in red or green. A green volume bar means that the price of the share of contracts has gone high during the particular trading day, and the estimate provided based on it is “Buy,” or the stock is considered as buying volume. On the other hand, when the color of the volumes bars is red, it means the price has declined during the trading day, and a selling volume is estimated based on the same.

Volume of Trade Chart

Trading Volume for Traders

The volume of trade is a very significant technical indicator for traders. Traders use this to understand the level of liquidity attached to a particular asset. It also points out how easy it will be for a trader to enter and come out of stock or contract based on the level of activeness of the asset. It helps traders understand how many interested buyers and sellers are there present for a particular stock and at what prices can one enter or leave the stock or contract. Thus, it is used as a winning strategy by traders.

Advantages

  • It shows the level of liquidity attached to the asset.
  • It acts as one of the key technical indicators for the traders.
  • It helps the traders to understand the point of entry and exit of the particular asset.
  • It is a key aspect to consider when traders are opting for intra-day trading.
  • It helps to understand the momentum in security and identify a trend.

Conclusion

The volume of trade is a very important parameter when it comes to trading. It acts as one of the important technical indicators for traders based on which they can decide whether to enter into a trade or exit from a trade. It tells us how liquid the asset is. All the stock market exchange calculates and provides this information.

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