Trading Volume
What Is Trading Volume?
Crypto trading volume is a measure of the total amount of money flowing in and out of a cryptocurrency market over a certain period of time. The trading volume combines all volumes on centralized exchanges and decentralized exchanges. It is a key metric used by traders and investors to gauge market sentiment and to help determine the value of a particular crypto asset. It is typically reported in USD but can also be reported in BTC or other currencies.
Volume can show the direction and movement of the cryptocurrency as well as a prediction of future price and demand. The 24-hour volume section at the top of CoinMarketCap website shows the total value of crypto traded in the past 24 hours.
Why Is Trading Volume Important?
Volume is an important indicator for traders to determine the future profitability of cryptocurrencies. High trading volume also helps exchanges make money by charging fees for trades on their platforms.
A greater volume of cryptocurrency transactions leads to fair cryptocurrency prices and removes the chance of distorted pricing. A low cryptocurrency exchange volume signals inefficient or low trades, as the asking prices of sellers fail to meet the bids of potential buyers.
What Is the Difference Between Trading Volume and Liquidity?
Cryptocurrency volume is similar to the concept of liquidity, but they are not the same. Volume is the sum total of actual trades taking place. Meanwhile, liquidity is the amount available for trading at any single price.
Usually, the higher the volume of cryptocurrency transactions, the more liquid the crypto market will be.
Low cryptocurrency volume exchanges, however, do create great arbitrage opportunities for investors. Some currencies can be bought at a very low price and sold for a premium elsewhere. This normally occurs if the coin or token is not in high demand or there is something wrong with the exchange’s operational features.
What Are Common Crypto Trading Volume Indicators?
Moving average of Volume (MAV): Helps to identify the overall trend of the trading volume.
Volume-weighted Average Price (VWAP): Measures the average price of a security based on the trading volume.
Volume-based Oscillators: Measure the changes in trading volume over a given period of time. Examples include On-Balance Volume (OBV) and Chaikin Money Flow (CMF).
Accumulation/distribution Indicator: Compares the closing price of a security to its trading range over a given period of time.
Volume Bars: Displays the volume of trading activity over a given period of time.
How Does Trading Volume Affect Cryptocurrency Price?
Trading volume is one of the most important indicators of cryptocurrency price movements. As the volume of trade increases, the price of cryptocurrency tends to increase. This is because more people are buying and selling the cryptocurrency, creating a higher demand and pushing the price up. However, it is important to note that higher trading volumes do not necessarily mean that the price of the cryptocurrency will go up. It could also indicate speculation and market manipulation.
