Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today's Wall Street term is "Average Daily Trading Volume"
What does that mean, "Average Daily Trading Volume?" It means the amount of shares traded on any given equity security on the exchange. For example, what is the trading volume daily on IBM? Well, you can look at the 10 day "average daily trading volume," the 30 day. Now, this is important measurement for investors to understand whether the company has liquidity or not and how many days trading volume they could make or have available to them if they made it an investment, in IBM. Now, if your "Average Daily Trading Volume" is a million shares and the stock makes a move above, say, a high, but on low average volume, maybe two hundred and fifty thousand instead of a million, investors are going to look at that and say, well, that wasn't really a powerful move given the "average daily trading volume" that normally happens. But let's say the stock makes a move to a new high that day on four times the "average daily trading volume." Investors are going to take note of that. That's an important part of what's going on and may support a big move that's called momentum. Now, every stock has an "average daily trading volume." Investors want to know this because they want to know the liquidity of how much they can buy. Institutions want to understand, will they be stuck in a position that could be illiquid?
Now, "Average Daily Trading Volume" also has another component to it, and that helps the company understand if they can raise money, what they could possibly sell into the market to raise capital without hurting it. Right. So let's say a company has an ATM, let's say, and they want to sell a little bit of stock to raise some capital, but they're only going to be 10 percent of the "average daily trading volume." They're going to have a less effect on the price of the stock. Today's word is "Average Daily Trading Volume," and it's important for traders to understand this, investors. The more liquidity the stock has, the better it may trade.
Average daily trading volume (ADTV) is the average number of shares traded within a day in a given stock. Daily volume is how many shares are traded each day, but this can be averaged over a number of days to find the average daily volume. Average daily trading volume is an important metric because high or low trading volume attracts different types of traders and investors. Many traders and investors prefer higher average daily trading volume compared to low trading volume, because with high volume it is easier to get into and out positions. Low volume assets have fewer buyers and sellers, and therefore it may be harder to enter or exit at a desired price.
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