Volume traded refers to the cumulative units of a crypto asset bought or sold between buyers and sellers within a given timeframe. It is a measure of the crypto asset’s trading activity and liquidity for a given period, or an all-time basis.
Unlike securities where the trading hours in a day are defined, Volume Traded for crypto assets needs to be determined for a preset amount of time for which analysis is required to be done. The Volume Traded of a crypto asset is usually measured in monetary metrics i.e. US$ for instance.
When crypto assets are more actively traded, their trade volume is high; and when they are less actively traded, their trade volume is low. Higher trading volumes are considered favorable over lower trading volumes as they indicate more liquidity, better trust, and proper execution of orders. On the other hand, lower trade volumes indicate a lack of market trust since there’s a mismatch between buying and selling prices.
In the crypto world, higher trade volumes are generally linked to the rapid increase/decrease of a crypto asset’s price. Traders tend to increase their profit margins by trading volatile assets, and increased volumes of trading usually lead to fairer valuations and lesser distortion of crypto assets’ prices.
Higher Volume Traded often indicates more market interest in a crypto asset and marks its potential increase in value. But on the contrary, it can also mark the start of a bear market (downfall) as more people start selling in fear of prices going down.
A crypto asset that is in the news for positive developments such as a new deal or a listing will see the Volume Traded shooting up, or vice versa. Volume indicators on crypto trading platforms indicate the Volume Traded for the given period for a crypto asset.
Statistical indicators such as the OBV (On Balance Value) and MFI (Money Flow Index) can clarify further the correlation between the Volume Traded and the price of a crypto asset.