Why crypto and forex volume is different, plus VWAP

Everything in the last two lessons assumed one thing: that the volume bar under your chart counts all the trading that happened. For exchange-traded stocks and futures, that is roughly true. For forex and crypto it is not, and treating it as true will mislead you. This lesson explains the difference and then introduces VWAP, a volume-based tool that is useful anywhere volume is meaningful.

Stocks and futures: one venue, real counts

A futures contract trades on one exchange. When your chart shows 50,000 contracts traded in a five-minute candle, that is every contract that traded, because there is nowhere else for it to trade. Stock volume is close: shares trade across several exchanges and off-exchange venues, but the consolidated tape reports all of them, and your platform usually shows the consolidated number.

For these markets, volume is what it says it is. The readings from the previous two lessons apply directly.

Forex: there is no total

Spot forex is not traded on an exchange. It is a network of banks, dealers and brokers trading with each other. There is no central place that counts every trade. When your forex broker shows a volume bar, it is showing one of two things:

• Tick volume: the number of price changes during the candle, not the amount traded. A candle where price ticked 300 times gets a bar of 300 regardless of whether each tick was a tiny order or a huge one.
• Broker volume: the amount traded by that broker's clients only. That is a small slice of the global market, and it is biased toward retail traders.

Tick volume does correlate loosely with real activity, because busy periods produce more ticks. It is not useless. But it cannot tell you whether a breakout had "the crowd" behind it, because it does not count the crowd. Treat forex volume as a rough activity gauge, not as participation.

A partial workaround: currency futures (traded on an exchange) have real volume and move with spot forex. Some forex traders keep a futures chart open just for the volume panel.

Crypto: many venues, questionable numbers

Crypto trades on dozens of exchanges at once. Your chart's volume shows the exchange the chart is pulling data from, which might be one of the largest or one of the smallest. The same coin over the same five minutes will show wildly different volume on different exchanges.

Two further problems. Some exchanges have historically reported inflated volume to attract listings and users; a high bar may be partly invented. And a large share of crypto volume is derivative contracts rather than spot coins, which are counted separately or not at all depending on the chart.

Practical rule: for crypto, use volume from one large, reputable exchange, and compare bars only within that one feed. Relative readings (this bar is three times the recent average) survive. Absolute claims ("massive volume across the market") do not.

Key idea: Stock and futures volume counts real, complete trading. Forex "volume" is usually tick count or one broker's slice; crypto volume is one exchange's slice and may be inflated. In those markets use volume only as a relative activity gauge from a single consistent feed.

VWAP: the volume-weighted average price

VWAP is the average price of the session so far, weighted by volume. If a lot of shares traded at 50 and a few at 52, VWAP is close to 50. The formula for each candle is: add up (price times volume) for every candle since the open, then divide by total volume.

Notice that candle 4 moved price to 51 but VWAP barely budged, because the volume was small. VWAP tracks where the crowd actually traded, not where the last few trades were.

Why VWAP matters

Institutions that need to buy a large amount over a day often judge their execution against VWAP: buying below it is "good," above it is "bad." Because of that, there is genuine order flow anchored to VWAP. When price is far above it, some large buyers wait for a pullback toward it. When price is far below, some large sellers wait for a bounce toward it. That gives VWAP a mild gravitational pull and makes it act like a dynamic level, similar to the moving averages in the next module.

For a day trader, VWAP answers a simple question: is the average participant today winning or losing? Price above VWAP means the average buyer today is in profit, which favours continued buying. Below VWAP, the average buyer is losing, which favours selling.

                              +---+
                            +---+ |
                          +---+     price pulling back to VWAP
                        +---+   ..
 VWAP .............. .... ....
                  +---+ ..
                +---+
              +---+

VWAP resets every session. It is an intraday tool. On a daily chart it is meaningless.

Keep the caveat from earlier in mind: VWAP is only as good as the volume feeding it. On stocks and futures it is solid. On forex it is built on tick counts. On crypto it depends on the exchange.

Try it: Add VWAP to a five-minute chart of a liquid stock or index future. Watch one full session. Count how many times price pulled back to within a small distance of VWAP and then resumed its prior direction. Then count how many times it crossed through and stayed. You are measuring how much respect VWAP gets in that market on that day.

Recap

• Stock and futures volume is real and complete. Forex volume is usually tick count or a single broker's slice. Crypto volume is one exchange's slice and may be inflated.
• In forex and crypto, use volume only as a relative gauge from one consistent feed; currency futures offer real volume for forex traders.
• VWAP is the session's volume-weighted average price: where the crowd actually traded.
• Institutions benchmark against VWAP, which gives it real order flow and a mild pull on price.
• VWAP is an intraday tool that resets each session; price above it means the average buyer today is winning.