Volume

Volume

What is trading volume?

In trading, volume refers to the number of transactions of a trader, a broker or a market within a certain time period.

Whenever a contract is traded, there is a buyer and the seller. Such a single transaction is counted as one transaction. Shares are counted individually, i.e. buying 100 shares of a company counts as a volume of 100.

Technical analysts often monitor the trading volume in a market, such as the market of a single company stock. An increase in trading volume can make an observed price movement more significant.

Trading volume in the forex market

When trading on the forex market, there is no central exchange. Although you can measure the volume in transactions for an individual broker, it is impossible to accurately measure the total number of transactions that have taken place on the forex market as a whole.

The volume shown by charting software such as MetaTrader 4 is only the measurement of volume traded for that broker. This can make the size of a broker relevant, as a higher volume of the broker makes its trading volume more significant in representing the overall market.

Discuss forex trading in our forum:

Volume in the stock market

Share trading volume is measured as the number of shares exchanged between buyers and sellers over a given period of time. For example, if a buyer purchases 10 shares from a seller, then the volume traded in that share equals 10. So if a trader bought 10 shares and then sold 10 shares at a later time, the total volume is 20.

The volume traded will vary depending on the share and the market that they are traded in.

Shares in which there is high volume are referred to as liquid stocks, whereas those in low volume are referred to as being "thin" or illiquid.

Significant change in volume for a stock can be used as a basis for making trading decisions. For example, if a trader is looking at a particular share that is increasing in price to jump the trend. But they observe that the volume is thin, meaning there is little buying or selling power behind the price movement. Thus, the trader might think that the price movement is not particularly strong and may stay out of the trade.

If, however, the trader is looking at a price move that has significant volume (i.e. there are many orders being placed that are causing the price to rise or fall), then the trader may want to take this trade. Why? Because it appears to be a more sustainable trend.

Discuss stock market trading:

  • Hi,
    "Shares in which there is high volume are referred to as liquid stocks, whereas those in low volume are referred to as being "thin" or illiquid."
    How much volume is consider as liquid stocks? 50 volumes?
    Thanks.
  • Hi JHTAN,
    it depends on the size of the stock market but real liquid markets starts at company shares traded well over a million on US exchanges....
  • Hi,

    Is that correct to say high volume with high transactions insinuate conviction on price moment like break out?

    Regards

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