Define Volume in the Stock Market

Volume in a stock market refers to the number of shares traded within a given period of time. Markets report volume by stock, so an investor can judge activity in one issue, and also by total activity in all stocks traded on that market. Volume figures are reported daily at the end of the regular trading day and also may be summarized weekly or yearly to indicate activity trends and possibly future price changes.

Counting Volume

Volume is the number of shares that change ownership between a buyer and a seller. The Securities and Exchange Commission has rules on counting volume. A 100-share trade between a buyer and a seller on the New York Stock Exchange or a similar trade between brokers on the Nasdaq market counts as 100 shares traded. It's the same if the NYSE specialist or Nasdaq market maker, a broker designated to create markets in a specific stock, buys or sell from his own stock inventory.

Doubling Volume

There are times, especially on Nasdaq, when a 100-share order actually counts as 200 shares. An investor enters an order to buy 100 shares of a stock, but the broker does not have those shares in its inventory. It must buy 100 shares from another broker to fill the client's order. The SEC counts that as two trades, and the sales volume is 200 shares.

Adding the Numbers

Individual stock volume is calculated by adding up the number of shares in an issue that change hands during a given trading period. If one trader buys 100 shares of a stock and another trader sells 1,000 shares of that stock, the volume is 1,100 shares. Buy or sell orders do not affect volume because a trade matches those orders.

Reporting Volume

Some markets and newspaper stock tables report volume leaders, typically called "most active" stocks. These are reported by day and week. Some also report large volume or big block trades, an indicator of activity by major shareholders. A sale of a large block of stock by a single investor may forecast a change in that company's stock value.

Volume Changes

Overall volume has increased dramatically over time. Total volume on the NYSE was about 1.5 million shares a day for many years but hit a record 16.4 million on Oct. 29, 1929, known as Black Tuesday and the Crash of 1929 and often cited as the start of the Great Depression of the 1930s. That record stood for more than 40 years. Now NYSE trading volume tops a billion shares a day. The newer Nasdaq's busiest days topped 5 billion shares, but its average is around 2 billion.

Other Calculations

Some traders judge activity by total volume, especially as related to price. High volume and falling prices indicate an overall decline in value, rising prices the opposite. Others judge volume by number of shares traded in relation to total shares outstanding. Another group calculates the actual number of trades, regardless of total shares, and some record volume by dollars, the total value of shares traded. A preponderance of buy orders generally indicates a rising price, of sell orders a decline.