Why Market Volume is So Important?
With the ever-increasing use of virtual currency and its volatility, cryptocurrencies are being adopted across the world for various transactions. Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. Last time we give you a brief introduction of the aspect of trading marketing and some point you need to know why market volume is so important? While in this article we will tell you We will give you the basics introduction of this, so you may have a deeper understanding of it.
What is market volume?
Volume is the calculated number of the contracts traded on a given day. Volume figures are very important for each traded month in a market, but most traders focus on the total volume of all traded months.
Why market volume is so important?
Open interest is the total number of outstanding long contracts, or equivalently, the total number of outstanding short contracts, the two are always the same. When a new contract begins trading.
Its open interest is equal to zero. If a buy order and sell order are matched, then the open interest increases to 1. Basically, open interest increases when a new buyer purchases from a new seller and decreases when an existing long sells to an existing short. The open interest will remain unchanged if a new buyer purchase from an existing long or a new seller sells to an existing short.
Volume and open interest are very useful as indicators of a market’s liquidity, not all markets are actively traded. some are virtually dormant, while others are borderline cases in terms of trading activity. Illiquid markets should be avoided because the lack of adequate order flow will mean that the trader will often have to accept very poor trade execution prices if he wants to get in or out of a position. Generally speaking, markets with open interest levels below 3,000 contracts, or average daily volume levels below 2,000 contracts, should be avoided, or at least approached very cautiously. New markets will usually exhibit volume and open interest figures below these levels during their initial months of trading. By monitoring the volume and open interest figures, a trader can determine when the market’s level of liquidity is sufficient to warrant participation.
Thanks for your time, after reading this article, you may have a deeper understanding of the reason why market volume is so important? It was an honor to share the experience of cryptocurrency derivatives trading with you. In the next time, we will discuss types of orders. For more information, please follow all of our newest articles on Bybit.
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