Trading Volume

Trading volume shows how actively a security is being bought and sold. It is reported for individual shares, funds, bonds, futures and entire markets.

For example, if 2 million shares of a company change hands in a day, its daily trading volume is 2 million shares. Comparing this with its average volume, say 800,000 shares a day, shows unusually high activity.

Volume matters for several reasons. High volume generally means a security is liquid, so investors can buy or sell large amounts without significantly moving the price, and the difference between buying and selling prices tends to be narrow. Low volume can make trading harder and more expensive.

Volume can also signal the strength of price movements. A price rise accompanied by high volume suggests strong buying interest, while a rise on low volume may be less convincing. Sudden spikes in volume often accompany important news, such as earnings announcements or takeover bids.

Technical analysts use volume as one of their main indicators. Long-term investors may look at volume mainly to make sure they can trade a security easily when they need to.