Volume of trade is the total quantity of shares or contracts traded for a specified security. 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.
Each market exchange tracks its trading volume and provides volume data. The volume of trade numbers is 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. In the meantime, investors can use 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.
Traders use various trading factors in technical analysis. Trade volume is one of the simplest technical factors analyzed by traders when considering market trades. The trade volume during a large price increase or decrease is often important for traders as high volumes with price changes can indicate specific trading catalysts. High volumes associated with directional changes in price can also help to reinforce support for the value of a security. Volume levels can also help traders decide on specified times for a transaction. Traders follow the average daily trading volume of a security over short-term and longer-term periods when making decisions on trade timing.