How reliable is reported trading volume?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 5 min
In short
Volume is the basic measure of how actively something trades, but reported figures do not always reflect reality: wash trading, where the same party buys and sells to itself, can inflate them. What matters is less the number than how it is compiled and who verifies it.
Key points
- Volume is the total quantity executed over a period
- Self-dealing can inflate the reported figure
- Cross-check it against book depth and price response
- Compilation methods differ by data provider
Definition
The total quantity executed over a period. A basic gauge of activity, though whether the reported figure reflects genuine supply and demand needs separate verification.
Volume is reported as, say, how many BTC changed hands in 24 hours. Heavily traded assets tend to fill near the price you expected, so volume serves as a rough proxy for liquidity. So far, so straightforward.
The problem is that volume can be inflated on purpose. If one party posts both sides and trades with itself, its net position is unchanged while the volume tally climbs. This is wash trading, and it has been documented repeatedly — by venues seeking better ranking, and by token issuers manufacturing the look of activity.
There are sanity checks. Large reported volume alongside a thin book, a price that barely reacts, or a metronomic run of identically sized prints all suggest the figure and the reality have parted company. Comparing several data providers, and looking at the per-venue breakdown, helps as well.
Watch out for
- · A high placing in a volume ranking is not evidence of trustworthiness
- · Trusting inflated volume leads to far worse slippage than expected
- · Even genuine volume says nothing about where the price goes next