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The dollar volume is the total value, expressed in terms of US Dollars (USD), of a certain security or 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 number 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. The true volume can fluctuate wildly from one day to the next, however, depending on market conditions. One day, it could be closer to $100 billion USD, while 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 that 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. 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 number should be only one of the things an investor looks at when trying to piece together a picture of a security's or market's value.
The dollar volume should be considered along with the question of how the stock market did on that particular day. A heavy 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 volume and a substantial increase could indicate that some investors 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.
Dollar volume is a good way to compare trading volume between two different equities that have dramatically different stock prices.
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