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Say, stock ABC trades 100,000 shares per day. I feel strongly that in the near future it will trade 200,000 shares per day.

Is there an instrument I can buy to profit on this?

To be clear, I don't care if the stock goes up or down. I want to make money if it trades at a higher volume and lose money when it trades at a lower volume. Essentially, if there is such a thing as liquidity insurance for a security, I want to short it. Possible?

Rodrigo de Azevedo
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John Shedletsky
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5 Answers5

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I've never heard of such a thing, but seems like if such a product existed it would be easily manipulated by the big trading firms - simply bet that trading volume will go up, then furiously buy and sell shares yourself to artificially drive up the volume.

The fact that it would be so easily manipulated makes me think that no such product exists, but I could be wrong.

Eric Petroelje
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What you are looking for is : Volatility http://en.wikipedia.org/wiki/Volatility_(finance)

Normally you can't trade that directly per product, but a product like the VIX as a whole.

Another option (sorry for the pun) is that certain option greeks deal with Volatility (vega I think?). There are ways to value options to buy/sell against that options/products volatility - but has some other side affects besides just pure trading of the Volatility. You'll probably need a lot of Math and use of http://en.wikipedia.org/wiki/Black-Scholes to fully understand/trade on it though.

user697111
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You can use trade volume for divergence and convergence studies

MrChrister
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CQM
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You are looking for arbitrage, not in real terms, and you may lose heavily. Big banks would suck out all profit before you get a chance to react. There are thousands of algorithmic trading systems in banks, which specifically predict such situations and try to make money from such moves. If you can invest in such a system, probably you can make a killing, else best is to forget about it. Remember that somebody before you has surely thought about it and put a system in place, so that somebody else cannot make money out of it before he/she does.

JoeTaxpayer
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DumbCoder
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Not directly an answer to your question, but somewhat related: There are derivatives (whose English name I sadly don't know) that allow to profit from breaking through an upper or alternatively a lower barrier. If the trade range does not hit either barrier you lose.

This kind of derivative is useful if you expect a strong movement in either direction, which typically occurs at high volume.

mafu
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