What is Volume in Stocks

Key Notes

Volume in stocks, The number of shares bought and sold during a given period

Liquidity & volatility, Low volume = less liquidity and smaller moves, high volume = more activity and larger moves

CFD trading volume, Refers to contracts traded, not physical shares

Technical analysis, Volume helps identify significant price moves and possible entry or exit points

Limitations, Volume shows past activity but doesn’t predict future moves on its own

What is Volume in Stocks? | Meaning, Examples & Insights

What stock volume means in trading, how it’s calculated, and why it matters for price movements and liquidity. Learn the difference between stock and CFD volume.

What is Volume in Stocks?

Volume is a term frequently used in investing, but what does it mean for traders? It is an indicator of how many shares of a stock are being bought and sold in a given time period. Anytime a share of a stock is bought, it must also be sold by a seller, as there is a finite number of physical shares. In terms of CFD trading, volume refers to the number of contracts bought and sold, as no physical shares are held by any buyer or seller. Because of this, CFD trading volume numbers do not always reflect how the underlying stock is trading.

Volume is related to price movements and liquidity for physical stocks. When trading volume is low, the stock is less liquid, and price movements tend to be less volatile. The opposite is true when trading volume is higher. Daily average trading volume is often used in technical analysis to indicate the significance of a move and suggest potential entry and exit points.

Stock Volume Example

The best way to understand how to read stock volume is by looking at an example. Stock volumes are quite simple to use in analysing physical stocks since you can easily compare trading volume from session to session. You can even calculate the average daily trading volume from each day over a given period, like the past 30 days. Let’s say a stock has a daily average trading volume of 50 million shares. During yesterday’s session, that stock gained 10% and saw a daily trading volume of 80 million shares. We can deduce that the higher trading volume was bullish, as the stock gained 10%, and that investors were buying shares, possibly due to a company announcement.

In CFD trading, volume is calculated in very much the same way, except it is the number of CFD contracts that changes hands, not physical shares. The CFD contracts are not included in the daily trading volume of the stock because CFD trading speculates on the price difference between entry and exit positions, rather than the actual stock price movement. This distinction is important for traders using a stock trading broker, since stock and CFD data will not always match.

What Can You Understand From Volume?

Volume is an excellent indicator of market interest in that particular stock. For example, during the short squeeze of meme stocks like GameStop (NYSE: GME) and AMC (NYSE: AMC), we saw record levels of daily average trading volume. An incredibly large number of shares were changing hands throughout those sessions, which is why we witnessed such large gains and drops in those stock prices.

In technical analysis, stock volumes are a great way to know at what price levels people are holding shares. This is often called a volume shelf on technical analysis charts and can indicate upcoming volatility.

• What volume can show traders:
• Investor interest and participation levels
• How strong a price move really is
• Where support and resistance zones may form
• When volatility could increase at specific price levels

What Can’t You Understand from Volume?

Volume is a past performance indicator and is generally not indicative of future events, except for the volume shelves mentioned in the previous section. In CFD trading, contract volume can tell us how many contracts are traded, but it doesn’t illustrate how many traders are actually interested in the stock. For example, if 500 CFDs change hands, we don’t know if it was five traders trading 100 CFDs or one trader trading 500 CFDs. Since CFDs do not involve ownership of the shares, volume here is less reliable for gauging market sentiment.

How to Calculate Volume

Trading volume is quite simple to calculate, as it is quite literally just the number of physical shares that changed hands over a specified period. Volume is usually calculated per day and then per short-term period, like 30 days, to get the average per session. For CFDs, it is the total number of CFDs that are bought or sold on that day. One CFD contract is equal to one physical share, so once again, it is quite simple to calculate CFD trading volume.

• Quick comparison of stocks vs CFDs:
• Stocks, Number of physical shares traded each session

CFDs, Number of contracts traded, which mirror shares but do not represent ownership

Stocks, Volume directly reflects investor demand for the company’s equity

CFDs, Volume shows speculative trading activity, separate from the company’s stock market data

What is a Volume Chart?

If your CFD trading broker provides access to volume charts, you’ll get a visual of trading volume for a particular asset. A volume price trend indicator chart, or VPT, is often used in technical analysis to compare how the stock’s price moves at different levels of daily trading volume. These are used by traders to determine exit and entry points, as well as charting areas of support and resistance. This is true across markets, whether someone is working with a forex trading brokerage or trading digital assets on a cryptocurrency trading platform.

What are the Indicators of Volume?

There are several indications of high trading volumes for a stock. The single best giveaway that a stock is experiencing higher than average trading volume is a large price move in one direction or the other. In CFD markets, sudden spikes in trading volume often occur when the underlying asset is volatile, helping traders anticipate where consolidation or breakout levels might form.