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). The same thing occurs on Mondays and Fridays as they mark the beginning and end of the trading week. Usually, trading volumes tend to increase towards the beginning and end of a trading day. 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. Trade volume is also an important factor for traders when they are making trading decisions. When a high trading volume is associated with such changes, faith in the real value of the security tends to get reinforced. In cases of a drastic price increase, a high trade volume can act as a catalyst. It proves to be an extremely useful yet simple tool in the situation of large price jumps or drops. The traders utilize trading volume as one of the factors used in their technical analysis while considering market trades. 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. Such passive investors utilize high-frequency algorithmic trading, which is a huge contributor to overall trading volumes in stock markets.
INSTOCK TRADE DRIVERS
Several major drivers of the increase in trading volume statistics in markets, especially in the US, include high-frequency traders and index funds. As a result, options and futures trading becomes more active. 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. It is because 100 shares of Alpha were traded, 50 shares of Beta were traded, and 200 shares of Gamma were traded. In such a situation, the total trading volume in the market would be 350. The second trader, Y, buys 200 shares and sells 100 shares of the same stock, Gamma, to X. The first trader, X, purchases 100 shares of stock Alpha and sells 50 shares of stock Beta. Example of Volume of TradeĬonsider a market that is composed of two traders. The actual figures are not made available until the following day. Similarly, the volume of trade reported at the end of a trading day is also an estimate. Trade volumes that are reported on an hourly basis are estimates. Volume of trade numbers may be reported as frequently as once every hour throughout one trading day. A higher trade volume is representative of better order execution and higher liquidity.Įvery market exchange tracks its trading volume and provides volume data.Trade volume is said to be high when a given security is traded more actively and vice versa.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.
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