Volume on an index, and volume of what exactly

Volume is the most misread series on an index chart, and the reason is simple: three unrelated things are displayed identically.

The cash index: none

Nothing transacts, so there is nothing to count. A platform showing a volume histogram under a cash index chart is showing you something else - usually the volume of whatever product it actually quotes.

The future: real and centralised

Index futures trade on an exchange, and the exchange counts every contract. That figure is genuine, complete for that contract, and comparable day to day.

It is the only index volume series worth much, and it comes with a complication lesson 7 deals with: volume migrates between contracts as one expires, so a falling histogram can mean the contract is being abandoned rather than interest fading.

The CFD platform: its own clients

A broker showing volume on its index product is showing its own flow. That is a real measurement of a real thing - just a much smaller and unrepresentative thing than the market.

Two brokers will show different volume for the same index on the same day, and neither is the market's volume. Reading a broker's histogram as participation is reading the broker.

What follows for reading

• Establish which of the three you have before using it for anything.
• Volume-based reasoning belongs on the futures series, where the number is centralised.
• A cash index chart with volume is displaying a proxy - find out for what.

The honest position

Volume analysis is genuinely weaker on indices than on single shares, because the instrument is a wrapper and there are several wrappers. That is not a gap in your knowledge to be filled by a better indicator; it is a property of the market.