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

Markets Desk·September 5, 2022

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?

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Frequently asked questions

What is trading volume and how is it measured?

Trading volume is the total number of shares or contracts traded for a specific security over a defined period, such as a day. It is measured for various assets including stocks, bonds, options, and commodities, serving as a key indicator of market activity and liquidity during that time.

Why is higher trading volume generally considered favorable?

Higher trading volume is typically viewed as favorable because it indicates greater market liquidity. This increased liquidity generally allows for better order execution, meaning trades can be completed more quickly and at prices closer to the current market value.

What are common reasons for a change in a security's trading volume?

A security's trading volume can decrease due to negative market expectations or adverse company news. Conversely, an increase in volume can be driven by heightened sales activity, though this surge can reflect either positive or negative market sentiment.

How is trading volume data reported and tracked?

Each financial exchange tracks and provides its own trading volume data. This data, which reports the number of trades, is commonly disseminated on an hourly basis throughout the current trading day for market participants to analyze.