At any particular point in time, a statistic known as trading volume may be used to determine how often a certain coin is being traded on the market. Investors would often look at the volume of trade as part of a wide range of financial instruments throughout the world.
Traders, most of the time, regard a crypto’s trading volume as one of the key indicators of its future trajectory and performance in the cryptocurrency market. Let’s find out more about it and how it can be useful to traders and investors alike.
What Does Volume Mean?
A coin’s trading volume is usually based on the number of times it is traded in a specific period of time. It is important for investors to study the volume generated from either transactions on a certain exchange or all exchanges altogether.
The form and location of this data vary depending on what company you use to trade. Major crypto exchanges like Coinbase, Binance, or Kraken have their own data flows visible on their websites and in their trading terminals, though the design for each is slightly different. Brokers and hubs like https://bitcoin-loophole.io (which supports multiple brokers) might also present this data differently, depending on the trading software used.
Still, bar charts are the most popular visual representation of the available volumetric data. These are often employed within a 24-hour timescale, which is commonly used by traders. It’s good to note as well that cryptocurrency prices would tend to skyrocket or dip depending on the number of trades.
To determine the overall worth of a particular cryptocurrency that has changed in a given time, you have to calculate the trading volume in cryptocurrencies. For traders, volume is a critical signal for predicting how profitable cryptocurrencies will be in the future.
Exchanges may charge fees on cryptocurrency transactions that are provided on their platforms, which helps them generate revenue. Fair crypto prices may be achieved when there is a large number of cryptocurrency transactions taking place.
When the asking prices of sellers do not match the bids of prospective purchasers, a low crypto exchange volume indicates inefficiency or low deals. Liquidity and cryptocurrency volume are closely related, but they are not the same. Liquidity is the quantity of money that may be traded at any given price regardless of volume.
Why Is Volume Important?
Since smaller exchanges have lower crypto liquidity, keeping track of your cryptocurrency investments is critical. Assume, for example, that a dealer wishes to dispose of one million SHIB coins. If you want to sell 1 million SHIB, you may have to go through hundreds of purchase orders, each one at a little lower price.
“Slippage” is the term used to describe the lower price the trader receives for their coins when there are fewer buyers and sellers on an exchange. There may be no purchase orders at all, in which case a trader must place fresh sell orders in the hopes that they are filled at some time.
Buying a coin with a low trading volume, on the other hand, may result in a greater cost than if trading volumes were higher. Prices rise as a result of having to purchase already-placed sell orders.
In general, larger volume results in more stable pricing, as well as less volatility. There is a chance that big price changes and spikes in volume might occur during periods of great fear or greed. Coins and assets with a large volume, on the other hand, tend to be less volatile.
What Does It Show?
The number of cryptocurrency trades demonstrates the demand for a certain coin. Higher volumes might spur even greater interest in a cryptocurrency as more people purchase and sell it.
Increases in trade volume might indicate either a bullish or a negative trend in the market’s outlook. In their massive market run-ups, meme currencies like Dogecoin (DOGE) and Shiba Inu (SHIB) have seen high volumes. These currencies lose their lustre as time goes on, and trading volume decreases in lockstep.
High-volume and low-volume cryptocurrencies may exist at the same time. When trade volume is low, it indicates that investors aren’t very interested in purchasing or selling a certain item. Because of this, there might be a variety of causes. Prices may not be conveying the entire picture if they deviate from the volume of trades.
Can Volume Be Faked?
Yes, “wash trading” is a method that allows you to swap volume. It’s common for traders to simultaneously place both buy and sell orders at the same time. It’s possible for the orders to cancel each other out and have no effect on the market movement. It seems as if the market is bustling, but this is only background noise. For the exchanges, increased volume means more traders utilising their platform, which means more money for them in the long run.
High-frequency trading (HFT) algorithms may be responsible for a large portion of the bogus volume in bitcoin markets. Essentially, they are automated trading programs that can execute a huge number of deals quickly. Some traders may favour decentralised exchanges over centralised ones because they are worried about the phoney volume on the latter.
The most crucial measure for many cryptocurrency traders is the volume of a coin’s trades. The volume of cryptocurrency trades is a gauge of the market’s activity. Volume in the stock market is similar to what’s been discussed here, but there are stricter controls on wash trading in shares.