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.