Volume

[edgar]

What is meant by Volume in regard to the stock market investment? Any help will be appreciating.
Thanks.

[aquaswim47]

Volume is simply the number of shares being traded. Thinly-traded stocks tend to move more than stocks with a lot of coverage to them. For instance, if a stock on a typical day has 100,000 shares of that trade that day suddenly has 150,000 shares, 200,000 shares, 500,000 shares trade that day, the price of the stock is either going to go up or be adversely affected (go down). The fluctuation in price, such as Chico's FAS (a speculative retail) will be wider than a JCP or a SHLD under normal market conditions. Off course, an event could cause a large stock like JCP or SHLD to rise rapidly (merger talks begin and the expectation is a bidding war) or fall sharply (a product line has to be discontinued or a merger breaks down).

Volume = Number of Shares Traded (bought or sold) x Market Price of Stock

The higher the average volume, typically, the lower the volatility of the stock.

[gijoe9]

As my friend has mentioned volume of a particular stock is the number of shares that traded that day. The average volume will be the average number that trade per day (averaged over the last ninety days usualy). It is important to note that volume plays a part in numerous ways when trading. If the volume is 50 million on a day does that mean that 50 million different shares changed hands? Some shares may change hands several times in one day but all trades count toward the volume.
Thinly traded stocks (low volume) are hard to get into and out of sometimes. Hard on the way in because it will cost you more then the current share price and out because you will get less than the current share price. Stay away from these til you get a better understanding of volume and how it effects trading. Generaly you will get the market price on high volume stocks when you buy or sell.

[edgar]

Many thanks for the replies gijoe9 and aquaswim47
Okay, now let me provide some space to clarify myself.

The higher the average volume, typically, the lower the volatility of the stock.

Would that imply a higher level of liquidity in the market?

[aquaswim47]

Volume affects too areas. Low average volumes specify that there is less liquidity in the stock as less buyers and sellers are willing to hold that stock. Usually, a stock that is thinly traded is a small company.

However, on a day that volume fluctuates rapidly, it can result in either an up-tick or a down-tick as the supply and demand of the stock are affected.

[gijoe9]

Liquidity related to volume in a specific stock is about the ability to liquidate a holding in that stock for a fair or market price. Less liquid issues are low volume and liquid issues are high volume. I have said basicaly the same thing as Aquaswim in a different way. I hope that helps if not please ask for more clarity.

[edgar]

Thanks for replies Its much clear now.