in futures markets, in which individual contracts specify standard delivery months. the volume of each contract is available, along with the total volume of the market; that is. the total volume of all individual contracts. Spread transactions are not included in volume. This information is officially posted one day late, but estimates are available for many markets during the day. Total volume of crude oil is estimated even, hour and released to online news services.
Individual contract volume is important to determine the delivery. month that is most active. Traders find that the best execution fills are most likely where there is greatest liquidity. Analysts, however, have a difficult time assessing volume trends because there is a natural increase in volume as a contract moves from second month out to the nearby and traders shift their positions to the closest delivery month; there is a corresponding decline in volume as the delivery date becomes close. Looking only at the volume of one delivery month is equivalent to ignoring seasonality in an agricultural market.
Each futures market has its unique pattern of volume for individual contracts. Some, such as the interest rates, shift abruptly on the last day of the month prior to delivery, because the exchange raises margins dramatically for all traders holding positions in the delivery month. Currencies are very different and tend to trade actively in the nearest month up to one or two days before that contract goes off the board. While volume increases slightly in the next deferred contract, anyone trading sizable positions will need to stay with the nearby contract to the end.
Other than for determining which contract to trade, and perhaps the size order that the market can absorb, an analysis of volume as discussed in this series of posts must use total volume, the aggregate of all contracts, to have a data series that does not suffer the patterns of increasing and decreasing participation based on the coming and going of individual delivery months. When traders roll from the nearby to the next deferred contract, the transactions are performed as a spread, and those trades are not included in the volume figures. Because positions are closed out in one contract and opened in another. there is no change in the open interest.
The stock market equivalent to using total volume would be to add the volume for all stocks in a similar group. This would help smooth over those periods when the volume of one stock is very low If the group is not highly correlated in price movement, the end result might be a volume series that has very little to do with the stock you are trading.