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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
 Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

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Volume definition

What is volume?

Volume is a measure of quantity. In finance, volume is the amount of a particular asset traded over a period of time. Volume is a key indicator of market activity and liquidity, which means that it is often presented alongside price information.

Whenever a contract is traded, there has to be a buyer and a seller in order for the transaction to take place – each transaction is a single exchange and will contribute to the trading volume. It is worth noting that the number of actual transactions is not given in the trading volume, it is the number of assets traded that is counted. So, if five buyers purchase one share each it looks the same as if one buyer purchases five shares.

When a market is described as ‘active’ it indicates that the trading volume will be higher, and if the market is described as ‘inactive’ it means that the trading volume will be lower. The trading volume is usually higher when there is a significant price fluctuation in the market – this could be in response to news reports, company announcements, political announcements and so on.

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Pros and cons of volume

Pros of volume

Volume can be used to measure stocks, bonds, options, futures, commodities and forex. However, volume is used most often in share trading, where it shows the number of shares that are being traded.

As volume offers an extra dimension when examining an asset’s price history, it is a popular tool in the technical analysis of markets. It helps determine the strength of price movements. If a price movement is accompanied by a proportionate increase in volume, it is seen as more significant than one that isn’t.

Cons of volume

Each market or exchange will track its own volume and distribute the data to traders. These volume reports usually come once an hour, but they are only estimates – for accurate volume figures traders have to wait until the end of the day.

However, there are other ways that traders can determine market volume, such as the tick volume or number of price changes. If the market price is changing rapidly, it can be an indicator of high trading volume.

Example of volume

Let’s say that you are looking at the volume of trading on the stock market. You decided to focus your attention on company ABC and want to determine whether the share price is increasing. However, you can see that there is a low trading volume, which would mean that there is little buying power on the market.

You decide that the price movement isn’t bullish enough and decide not to open a position.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. 

Professional clients trading spread bets and CFDs can lose more than they deposit.

Options and futures are complex instruments which come with a high risk of losing money rapidly due to leverage. They’re not suitable for most investors. Before you invest, you should consider whether you understand how options and futures work, the risks of trading these instruments and whether you can afford to lose more than your original investment.

Trading stocks and shares ‘on margin’ within a US options and futures account – meaning that you only finance part of the cost of acquiring a position in a security – carries additional risks over buying securities on a fully funded basis and may result in losses exceeding your original investment. Trading on margin will also result in additional costs to you as the investor and any securities purchased using margin may be held as collateral by the lender, restricting both your rights as shareholder, and your ability to use the securities until the margin trade is closed. You should familiarise yourself with these risks before trading on margin.

The value of shares, ETFs and other ETPs bought through a share dealing account, a US options and futures account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.

Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts and US options and futures accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd.   

IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.   

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