Volume is the number of shares traded in a period. It shows how much participation is behind a price move.
Reading volume
- A big price move on high volume has more participation behind it than the same move on low volume.
- A breakout above a level on rising volume is generally trusted more than one on thin volume.
- Compare today's volume with the average volume over recent weeks, not with an absolute number.
Liquidity
Liquidity is how easily you can buy or sell without moving the price. A liquid stock has lots of shares trading and a tight bid-ask spread. An illiquid one has few trades and a wide spread.
Why it matters to you
- Illiquid stocks cost more to trade because of the spread.
- A market order in a thin stock can fill far from the last price.
- In an illiquid stock, a sell stop can fill much lower than its trigger.
- Options have the same issue: check volume, open interest and the bid-ask spread of each contract.
Quick check before you trade
Look at average daily volume and the current spread. If the spread is wide compared with the price, use limit orders and a smaller size.
Key point. Volume figures on free charts can differ from other sources, since feeds count trades differently.
Education only, not investment advice. Trading involves real risk of loss, including loss of everything you put in. See the full disclaimer.