What does 'Low volume' mean?
You may have seen the term ‘low volume’ on some of Coinranking’s coin pages. Read further to find out what that means >>
It's important to first understand what trading volume is. Trading volume is the total value of all coin trades within a certain time period, usually within the past 24 hours. This total value consists of both buying and selling the coin and represents the overall activity of the cryptocurrency.
If an exchange has a low volume of trading for a certain cryptocurrency, the trading volume is below 500.000 USD in 24 hours. A low-volume cryptocurrency would indicate a lack of liquidity and subsequently falling prices.
In the case of an investor, if a token has a low volume on an exchange, the investor would likely have to pay a higher price to buy the token because there is a lower supply of the token.
Someone looking to sell a token with a lower volume might have to sell the token for a lower price than if it had a higher volume because there may not be enough demand for it.
Tokens with low volume tend to be more volatile than higher-volume tokens. This is because price movement can easily be manipulated.
Cryptocurrencies with a higher trading volume indicate a higher demand for cryptocurrencies. This means more people are buying and selling the token and interest in the token is high.
Strong surges in trading volumes would indicate strong bullish sentiment. This could translate to prices going up.
The volume of cryptocurrencies matters because...
...trading is difficult when liquidity is low.
Liquidity allows you to quickly buy or sell a cryptocurrency. It refers to the number of tokens available for trading. When liquidity is low, it's generally due to lower trading volume. When the liquidity is at the right amount, the trader should be able to buy or sell the token at the same price.
When lower liquidity occurs, the bid-ask spread is higher.
...it's not as easy to take profits.
When trading volume is low and a trader wants to sell, there might not be a buyer that is willing to buy the token at the seller's price. It could take a longer time to sell the tokens when trading volume is low.
...a low volume might cause uncertainty.
When trading volume is low, it could indicate that there’s not a lot of interest in the token. You can wonder:
- Why is no one taking an interest in the token?
- What is the reasonable price for the token?
- Are prices high or low?
- Did a big investor dump the tokens?
- Is the company legit?
Thus, the uncertainty around the token price will cause a lack of trust. So if you’re looking to trade, make sure the token has a reasonable trading volume to avoid any issues with trading down the line.