According to FactSet, since the beginning of 2015, over 6.5 billion shares have exchanged hands on the U.S. stock exchanges.
While this might sound like a lot of liquidity, it is important to remember that not all stocks were created equal.
Added to this, timing means everything when it comes to stock trading.
According to The Wall Street Journal, most stocks are traded during the 1st and the last hour of a trading session. As a result of this and due to limited trading during the day, daily volatility is increased.
Added to this, it is the largest companies which make up the majority of trading volume. In fact, according to FactSet, the combined average volume year to date of the ten most actively traded companies on the SPX (S&P 500 index), accounted for more than double the volume of 250 companies which were the least traded.
To put it into perspective, 4 million shares are traded daily on the SPX. Compare this to the median which is slightly above 2 million.
The average daily volume of Bank of America Corp. (BAC, -1.02%) is approximately 87 million shares. This is then followed by Apple Inc. (AAPL, -1.14%) which has a daily volume of about 54 million shares. To compare this to lower traded stocks, Dun & Bradstreet Corp. (DNB, -0.71%) trades on average 300,000 shares daily.
According to the co-founder and co-head of equity trading at Themis Trading, Joe Saluzzi, 19.3% of trades for the shares of smaller companies, takes place in the last half an hour before the closing bell. In 2007, this number was at 14 percent so an increase is evident.
Saluzzi explained that the lack of liquidity in smaller companies has deteriorated over the years and as a result, SEC (U.S. Securities and Exchange Commission) has put a program in place to address this matter. From May 2016, companies with markets cap of $2 billion or less will have a spread in bets of a nickel instead of a spread of 1 cent. This should prompt genuine liquidity market makers while noise traders will hopefully be eliminated.
Interestingly, among the mega cap stocks which includes those companies who have a market cap of over $100 billion, the least traded stocks with a daily average volume at about 3-4 million shares include IBM Corp. (IBM, -1.20%), Google Inc. (GOOG, -1.42%), Amazon.com (AMZN, +0.62%) and Berkshire Hathaway Inc. Class B (BRK.B, -1.20).
It is important to note though that this could be as a result of the high cost of Amazon and Google shares trading at $430 and $548 a share respectively. This makes these stocks almost 4 times more expensive than other stocks such as Apple which is currently trading at around $130 a share.
At the top of the trading list are the shares of Bank of America and Ford Motors Co (F, -0.78%) which fall between $14 and $16 a share. These companies are also very popular among day traders.
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