Market makers differ from other agents, who we term investors, because they can be contacted more easily. If investors are better able to contact each other, then market makers face more competition and post lower bid–ask spreads. Moreover, if investors are heterogeneous in their ability to contact market makers, then market makers post lower spreads for investors with higher such ability. Weill (2007) studies the dynamics of an intermediated search market away from steady state.

Volume of trade measures the total number of shares or contracts transacted for a specified security during a specified time period. It includes the total number of shares transacted between a buyer and seller during a transaction. When securities are more actively traded, their trade volume is high, and when securities are less actively traded, their trade volume is low.

Trading Volume as a Market Indicator

Compared with the same time last year, the Dow’s volume is roughly the same. Basically, even though the Dow has been rising over the short term, you don’t see volume increasing compared to last year. Given that volume may not be confirming the bullish trend in stocks, investors may want to exercise some caution over the short term.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Here are some common ways to use volume to confirm a bearish price move, as well as an example of how volume Trading Volume can undermine a price trend. Here are some common ways to use volume to confirm a bullish price move, as well as an example of how volume can undermine a price trend. Volume tends to be highest near the market open and close and the start of the week and last day of the week.

How Does Volume Affect Stocks?

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For example, suppose company ABC’s stock increased in price by 10% over the past month. An investor is interested in the company and wants to purchase 1,000 shares. They conduct a fundamental analysis of the company and see that its earnings and revenues have consistently increased over the past year.

What is retail buying?

Conversely, some investors would distrust a big move higher, and think it’s a fake rally, if it is done on low volume. Just because a stock is bought and sold frequently, and has high trading volume, doesn’t tell you much about the quality of the investment. Each market or exchange will track its own volume and distribute the data to traders.