What it means
In financial markets, volume of trade counts the number of shares, contracts or units that change hands, usually per day. In international economics, the same phrase describes how much merchandise moves between countries, measured in physical units or in total value.
Both uses ask the same question: how much is actually being exchanged? The measure matters because activity attracts activity.
A market with a high volume of trade tends to have narrower bid-offer spreads (the gap between the price to buy and the price to sell), faster execution and fewer surprises when a large order arrives. Markets with a low volume of trade can be expensive to operate in.
In trade statistics, economists often separate volume from value. Value changes with prices and exchange rates, while volume strips those out by counting units or by using constant prices.
A country can export fewer tonnes of copper but earn more if the price has risen, so the two figures can move in opposite directions. The figure is easy to calculate when the data are available.
For securities, multiply the number of shares traded by the average price to get the value of trade, and for goods, multiply the units shipped by the price per unit. Averages over weeks or months smooth out unusual days.
Management teams watch volume of trade for different reasons. A company listed on a stock exchange tracks it as an indicator of investor interest, while an exporter tracks the volume of trade in its sector to size demand and set production targets.
The main caution is double counting and definitions. Some exchanges count each trade once, while others may report both sides, and trade statistics may record the same goods again if they pass through a re-export hub.
In practice
Real-world examples.
Example
A mid-sized exchange wants to attract new listings. Its management reports that average daily volume of trade has doubled from 5 million to 10 million shares in a year, using the figure to show companies that their shares would find ready buyers.
Example
A coffee exporter checks national export statistics and sees that the volume of trade in beans rose 4% while its value fell 6%. Prices had dropped sharply, so the exporter cuts planned spending on new storage until prices recover.
Example
A broker compares the volume of trade in two similar bonds before recommending one to a pension fund. The bond with ten times the volume lets the fund exit more cheaply if conditions change, so the broker prefers it.
Formula
Calculation
Value of trade = Volume traded x Average price per unit
An exchange reports that 2,000,000 shares of a company changed hands in a week, at an average price of $18 per share. Value of trade = 2,000,000 x $18 = $36,000,000. In the following week the volume of trade is 1,500,000 shares at an average price of $24. Value is then 1,500,000 x $24 = $36,000,000, the same as before, even though volume fell by 25% (500,000 / 2,000,000) because the price rose by one third.Case study
Seen in the real world.
Tallow and Finch is an illustrative, fictional furniture exporter selling to three overseas markets. Its finance manager noticed that export revenue in dollars had grown 8% year on year, and the board was pleased.
When she looked at the volume of trade in physical units, however, she found that shipments had fallen 5%. Price increases and a stronger customer currency had hidden a real decline in demand.
The board commissioned a pricing review rather than expanding capacity. In this fictional case the split between volume and value stopped the company from investing in extra factory space it did not need. The finance manager now reports both measures side by side every month, with a third line showing the change in average selling price. That simple three-line table lets the board see at a glance whether growth comes from selling more or from charging more.
Watch out
Common mistakes.
- Assuming that a rising value of trade means a rising volume, when price increases alone can lift the value.
- Adding up buy and sell sides of the same trade and reporting double the true volume.
- Comparing volumes across markets that count units differently, such as shares versus contracts.
Questions
People also ask.
Is volume of trade the same as trading volume?
In financial markets, yes, the two phrases are used interchangeably to mean the number of units traded over a period.
Why do economists separate volume and value?
Because value mixes quantity with price and exchange rate changes, while volume shows the real change in the amount of goods moved.
How often is it measured?
Exchanges report it daily, while national trade statistics are usually published monthly or quarterly.
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