A:

The

number of shares traded in a single day can be greater than the number of a company's outstanding shares, but this is relatively rare. This high trading volume tends to occur during important company events and is more common with companies that have a relatively small float. It is also usually marked by a large price movement. This essentially means that there is so much buying and selling of shares that a lot of the shares are changing hands in a single day. This does not, however, mean that every shareholder is selling his or her shares while new holders are taking that shareholder's place.

Companies receive a large amount of market focus and stock activity during important events such as public offerings or takeover bids, which bring it to the focus of traders - regular traders and day traders - and increases trading volume. The day traders are trying to make a quick buck on the stock's movement by entering and exiting positions with the intention of only holding the shares for a few hours or even minutes. Longer term traders, on the other hand, are buying or selling off of the news, which also contributes to the increased stock activity. The day traders or short-term investors provide the liquidity required to trade more shares than the actual shares outstanding. In other words, while a lot of investors who held the shares before an event will not trade on this particular day, it is the day traders and short-term ones that trade the shares many times during a trading session.

For example, assume that the number of shares outstanding in a company is 10 million. Before the market opens, the company announces that its new drug has been approved to be sold on the market - a huge breakthrough. Imagine that half of the shareholders do not sell their positions based on the news and continue to hold them. But five million shares are sold on this news throughout the trading session by investors who may feel that the new drug won't bring in much extra business or simply to lock in any gains. And there will be buyers, with different views and aims, for those shares. All this activity boosts trading volume. If, say, each of the five million shares are each traded 10 times in a day, this would be recorded as a trading volume of 50 million shares, which is five times more than the number of outstanding shares.

This can happen when a lot of new investors - both long and short term - enter the stock. So, while not all shares are being actively traded, a fair portion are and it is these that are being bought and sold multiple times, resulting in more shares trade, or changing hands, than there are outstanding.

For further reading, see The Basics Of Outstanding Shares And The Float.

RELATED FAQS
  1. What is the difference between shares outstanding and floating stock?

    Learn about shares outstanding, floating stock, how to calculate a company's floating stock and the difference between shares ... Read Answer >>
  2. Why would I need to know how many outstanding shares the shareholders have?

    Find out why shareholders should know how many outstanding shares have been issued by a corporation, and learn what happens ... Read Answer >>
  3. What is the difference between a company's outstanding shares and its float?

    Understanding share counts, including outstanding shares relative to float, is an integral part of determining whether or ... Read Answer >>
  4. What is the difference between weighted average shares outstanding and basic weighted ...

    Outstanding shares refers to stock that is currently held by investors, including shares held by the public, and restricted ... Read Answer >>
  5. How do I determine a company's floating stock?

    Find out more about floating stock, outstanding shares and restricted stock, and learn how to calculate the amount of a company's ... Read Answer >>
Related Articles
  1. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  2. Investing

    Calculating Floating Stock

    Floating stock is the number of shares a company has available for trade in the open market.
  3. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  4. Investing

    The Weighted Average Of Outstanding Shares

    The quantity of a company’s outstanding shares changes when it issues new shares, repurchases or retires existing ones, or converts others.
  5. Personal Finance

    A Day in the Life of a Day Trader

    Day trading has many advantages and, while we often hear about these perks, it's important to realize that day trading is hard work.
  6. Investing

    How To Pick Winning Penny Stocks

    Cheap doesn't always equal good. When choosing penny stocks, investors would be wise to note several key factors that affect the way these stocks trade.
  7. Investing

    What The Market Open Tells You

    The first few moments of trading provide a lot of information. If a trader analyzes this information, it can give a lot of insight into the market's moves for the day.
  8. Trading

    Four Great Stocks for Day Traders

    Four day trading stocks that offer volume and a consistent history of big intraday price movements.
  9. Trading

    Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
RELATED TERMS
  1. Floating Stock

    The number of shares available for trading of a particular stock. ...
  2. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  3. Active Stocks

    Listed shares on an exchange that are heavily traded. Active ...
  4. Normal Market Size

    A share classification structure based on the number of shares ...
  5. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  6. Fully Diluted Shares

    The total number of shares that would be outstanding if all possible ...
Hot Definitions
  1. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. ...
  2. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  3. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  4. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  5. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  6. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
Trading Center