Average Volume

Revision as of 14:46, February 26, 2009 (edit) Pcushing - Sr. Director (Talk | contribs) ← Previous diff		Revision as of 14:48, February 26, 2009 (edit) (undo) Pcushing - Sr. Director (Talk | contribs) Next diff →
Line 3:		Line 3:
	'''The average daily volume is the average amount of shares traded daily for a particular security.'''		'''The average daily volume is the average amount of shares traded daily for a particular security.'''
-	Also known as average volume or average daily trading volume, the average daily volume is a measure of the [[liquidity]] of a stock based on the number of shares that trade hands from sellers to buyers. If a buyer purchases 100 shares, then the volume for that period increases by 100 shares from that transaction.	+	Also known as average volume or average daily trading volume, the average daily volume is a measure of the [[liquidity]] of a stock based on the number of shares that trade hands from sellers to buyers each day. If a buyer purchases 100 shares, then the volume for that period increases by 100 shares from that transaction.
-	When the average daily volume is high, the stock can be easily traded and has high liquidity. However, if the average daily volume is low, the security is less liquid and harder to trade because there are fewer buyers and sellers for the stock. Securities with low average daily volumes (for example, fewer than 50,000 trades a day) are susceptible to higher volatility because sellers have more control over the price of the security. Stocks with higher average daily volumes are more competitive and therefore less volatile.	+	When the average daily volume is high, the stock can be easily traded and has high liquidity. However, if the average daily volume is low, the security is less liquid and harder to trade because there are fewer buyers and sellers for the stock. Securities with low average daily volumes (for example, fewer than 50,000 trades a day) are susceptible to higher volatility because sellers have more control over the price of the security. Securities with higher average daily volumes are more competitive and therefore less volatile.
	Average daily volume tends to increase or decrease dramatically when a company submits earnings releases that are counter to analyst estimates.		Average daily volume tends to increase or decrease dramatically when a company submits earnings releases that are counter to analyst estimates.

---

Revision as of 14:48, February 26, 2009

The average daily volume is the average amount of shares traded daily for a particular security.

Also known as average volume or average daily trading volume, the average daily volume is a measure of the liquidity of a stock based on the number of shares that trade hands from sellers to buyers each day. If a buyer purchases 100 shares, then the volume for that period increases by 100 shares from that transaction.

When the average daily volume is high, the stock can be easily traded and has high liquidity. However, if the average daily volume is low, the security is less liquid and harder to trade because there are fewer buyers and sellers for the stock. Securities with low average daily volumes (for example, fewer than 50,000 trades a day) are susceptible to higher volatility because sellers have more control over the price of the security. Securities with higher average daily volumes are more competitive and therefore less volatile.

Average daily volume tends to increase or decrease dramatically when a company submits earnings releases that are counter to analyst estimates.

Examples

Consider an extreme case of low average daily volume where there is only one seller of a security. If you want to buy that security from the seller, you have to accept their price because there is no one else competing for the sale. Later, as an owner of this low average daily volume security, the company releases horrible earnings news. Now, wou want to sell the security, however, because there are very few buyers for security, you are stuck with it.

In another case, you have two securities you're considering purchasing. Everything about the two companies is equivalent -- share price, earnings, demographics, etc. -- except, one of the securities has a higher trading volume than the other. In this case, purchase the company shares with the higher trading volume. This will ensure you purchase the shares at a competitive price and will have a better chance of selling the shares in the future.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.