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.
Basics of Volume of Trade
Volume of trade measures the total number of shares or contracts transacted for a specified security during a specified time period. It includes the total number of shares transacted between a buyer and seller during a transaction. When securities are more actively traded, their trade volume is high, and when securities are less actively traded, their trade volume is low.
Each market exchange tracks its trading volume and provides volume data. The volume of trade numbers are reported as often as once an hour throughout the current trading day. These hourly reported trade volumes are estimates. A trade volume reported at the end of the day is also an estimate. Final actual figures are reported the following day. Investors may also follow a security’s tick volume, or the number of changes in a contract's price, as a surrogate for trade volume, since prices tend to change more frequently with a higher volume of trade.
Volume tells investors about the market's activity and liquidity. Higher trade volumes for a specified security mean higher liquidity, better order execution and a more active market for connecting a buyer and seller. When investors feel hesitant about the direction of the stock market, futures trading volume tends to increase, which often causes options and futures on specified securities to trade more actively. Volume overall tends to be higher near the market's opening and closing times, and on Mondays and Fridays. It tends to be lower at lunchtime and before a holiday.
In recent times, high-frequency traders and index funds have become a major contributor to trading volume statistics in U.S. markets. According to a 2017 JPMorgan study, passive investors like ETFs and quantitative investment accounts, which utilize high-frequency algorithmic trading, were responsible for 60 percent of overall trading volumes while "fundamental discretionary traders" (or traders who evaluate the fundamental factors affecting a stock before making an investment) comprised only 10 percent of the overall figures.
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