What is a Dollar Volume?
The dollar volume is the total value, expressed in terms of US Dollars (USD), of a certain security, or certain stock exchange, traded over a certain period of time. Often it is reported over the course of one business day to indicate whether shares were traded lightly or heavily during the course of the trading day. The dollar volume may be an indicator of how confident investors are in their choices.
The New York Stock Exchange, for example, has an average dollar volume of $55 billion USD in shares traded per day. However, the true dollar volume can fluctuate wildly from one day to the next, depending on market conditions. One day, the dollar volume could be closer to $100 billion USD. The next day, it could be closer to $35 billion USD.
There are a number of things that can affect the dollar volume. A great uncertainty in the market may mean many investors prefer to hold onto their shares, rather than trading. This could happen in bear or bull markets. Certain international holidays may slow international trading on some days. While stock markets are located all over the globe, most are closed on days of national holidays in their home nations, as are most investment and brokerage firms. Therefore, trading could be lighter as those international firms take the day off.
A heavy dollar volume does not necessarily indicate good economic health. In times of great economic upheaval, people may be willing to sell their shares, even at a loss, in order to get rid of them before they lose even more value. Therefore, the dollar volume should be only one of the things looked at when trying to piece together a picture.
The dollar volume, should be considered along with the question of how the stock market did on that particular day. A heavy dollar volume, coupled with a substantial increase in the market, is a good indication that investors are happy with the way things are going. A light dollar volume and a substantial increase could indicate some are concerned or confused, or that one sector had a really good day. Likewise, if the market goes down and the trading volume is low, that could be a sign of hope to some as they point out that many investors are not willing to engage in a sell off.
Written by Ken Black
