What volume counts
Trading volume is the total amount of an asset that changed hands over a period, usually the last 24 hours. It can be expressed in units of the coin (for example, a number of coins), or in value, typically converted into US dollars. Every completed trade contributes: one buyer and one seller meet, and the quantity of that trade is added once.
Volume is meant to show how active a market is. High volume usually goes with easier trading, since many participants are present, which is related to market liquidity. But the two are not the same thing: volume describes what has traded, while liquidity describes what could trade now without moving the price much.
Why people watch it
- Activity. Rising or falling volume suggests interest is increasing or fading.
- Context for price moves. A price change on heavy volume is often considered more meaningful than one on very light volume, a rule of thumb that is common in technical analysis but not a reliable law.
- Comparing venues. Volume is often used to rank exchanges and decide which sources to trust or to weight, as in price aggregation.
Because volume is used this way, there is an incentive to make it look larger than it is.
Wash trading
Wash trading means trading with yourself, or with a colluding party, so that no real change in ownership occurs while the trade is still reported. For example, one party sells a coin to another account it controls and immediately buys it back. Each leg is counted as volume, yet the party is in the same position as before.
Reasons given for this behaviour include making a venue look busier to attract customers, lifting a token’s apparent popularity, or ranking higher on data sites. It is considered a form of market manipulation and is illegal in many jurisdictions for regulated markets, though enforcement and rules differ widely across the world and across crypto venues.
Researchers and journalists have raised concerns about inflated volume at some venues over the years, but precise estimates of how much volume is fake are uncertain and vary by method, so treat any specific percentage with caution.
Wash trading is not the only reason for misleading numbers. Others include:
- Incentive programmes. Some venues reward trading activity with fee discounts or tokens, which can encourage trades whose main aim is to collect the reward.
- Self-trading by market makers or bots. Not all automated trading is manipulative, but it can add volume that does not reflect fresh interest.
Reporting differences
Even honest venues count in different ways, so volume totals are not directly comparable.
- Spot versus derivatives. Some figures include futures and perpetual contracts, which often trade in much larger notional amounts than spot markets. Others show spot only.
- Units and conversion. Volume in coins converted to dollars depends on the price used and the conversion rate chosen, and dollar-pegged tokens do not always trade at exactly one dollar.
- Double counting. When an aggregator adds up the volume of several venues, the same economic activity can sometimes be counted more than once, for example if trades are routed through several places.
- One side or both. Conventions vary on whether a trade is counted once or as a buy plus a sell. A careful source states which one it uses.
- Time windows. “24-hour volume” is a rolling window, so it will change even without new activity as old trades drop out.
- Decentralized trades. On-chain volume can be verified in principle because the transactions are public, but it can still include self-trades and loops that move assets in circles.
- Data coverage. A site may miss some venues or pairs, and may cover them differently from another site.
Warning signs of questionable volume
None of these proves anything by itself, but together they are reasons for caution.
- Very high reported volume with a wide spread and a visibly thin order book
- Volume that is steady and round across hours and days, with little response to news
- Trade sizes that look unnaturally uniform
- A venue with little web traffic or few real users but large reported volume
- Large volume relative to the number of people who appear to hold the token
- Trading concentrated in one unusual pair
- A new token with sudden volume but little other evidence of real use
Checking the order book, the size of the spread and depth near the price gives a different view that is harder to fake than volume, though not impossible. The article on the order book explains how to look.
How to read volume more carefully
- Compare the same definition over time rather than across different sites.
- Prefer sources that explain their method and which markets they include.
- Look at volume together with depth and spread, not alone.
- Treat sudden jumps in small tokens as a prompt for more investigation, not as a signal of strength. Pump and dump schemes often use bursts of apparent activity to draw in buyers.
- Remember that volume says nothing certain about where the price goes next.
Cryptocurrency prices are volatile and you can lose some or all of your money. This article is general education and not financial, tax or legal advice.