In
capital market
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...
s, volume, or trading volume, is the amount (total number) of a
security
Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...
(or a given set of securities, or an entire market) that was traded during a given period of time. In the context of a single
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
trading on a
stock exchange
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...
, the volume is commonly reported as the number of shares that changed hands during a given day. The transactions are measured on
stocks
Stocks are feet restraining devices that were used as a form of corporal punishment and public humiliation. The use of stocks is seen as early as Ancient Greece, where they are described as being in use in Solon's law code. The law describing ...
,
bonds,
options contracts,
futures contract
In finance, a futures contract (sometimes called a futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset ...
s and
commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
.
The average volume of a security over a longer period of time is the total amount traded in that period, divided by the length of the period. Therefore, the
unit of measurement
A unit of measurement is a definite magnitude (mathematics), magnitude of a quantity, defined and adopted by convention or by law, that is used as a standard for measurement of the same kind of quantity. Any other quantity of that kind can ...
for average volume is shares per unit of time, typically per
trading day
In business, the trading day or regular trading hours (RTH) is the time span that a stock exchange is open, as opposed to electronic or extended trading hours (ETH). For example, the New York Stock Exchange is, as of 2020, open from 9:30 AM Easte ...
.
Significance
Trading volume is usually higher when the price of a security is changing. News about a company's financial status, products, or plans, whether positive or negative, will usually result in a temporary increase in the trade volume of its stock.
Shifts in trade volume can make observed
price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in the c ...
movements more significant.
Higher volume for a stock is an indicator of higher
liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liqui ...
in the market.
For institutional investors who wish to sell a large number of shares of a certain stock, lower liquidity will force them to sell the stock slowly over a longer period of time, to avoid losses due to
slippage.
Legal implications
In the United States, the
Rule 144 of the Securities Act of 1933 restricts the buying or selling of an amount of a security that exceeds a certain fraction of its average trading volume, also known as relative volume. Therefore, the calculation of the trading volume is regulated by the
SEC.
See also
*
Stock market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...
*
Forex market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
References
{{Authority control
Stock market