What is Trading Volume? What You Need to Know About It

Trading volume is the total amount of shares or contracts traded for a particular security over a given time period. It can be measured over any type of security traded during a trading day. Trading volume is measured on stocks, bonds, option contracts, futures contracts and all types of commodities.

Trading volume is also a measure of market activity and liquidity over a given period of time. Higher trading volumes are considered more favorable than lower trading volumes because they have higher liquidity, which translates into better order execution. Volume tends to be highest near the opening and closing of the market and at the beginning and end of the week. The most common reason for a security's trading volume to decrease is a negative expectation in the market or a new piece of news about the company. An increase in trading volume can be either positive or negative due to an increase in sales.

How Does Trading Volume Work?

Each exchange tracks its own trading volume and provides volume data. The volumes of the number of trades are reported once per hour during the current trading day. These hourly reported trading volumes are estimates. The trading volume reported at the end of the day is also an estimate. The final actual figures are reported the following day. When investors feel uncertain about the direction of the stock market, futures volume tends to increase, often resulting in more active trading of options and futures on specific securities. In general, volume tends to be higher near the market's opening and closing times and on Mondays and Fridays. It tends to be lower during lunch hours and before holidays. Volume levels can also help traders decide on specific times for a trade. Traders track a security's average daily trading volume over short- and long-term periods when deciding the timing of a trade. Traders can also use various technical analysis indicators that include volume. The Securities and Exchange Commission (SEC) regulates the sale of securities by investors. Under Rule 144, dealers may not sell securities in excess of 1% of the outstanding shares of the same class being sold.   Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!