Near the end of the trading day, about 2:30 p.m., markets can pick up in both volume and breadth. That’s because Exchange-Traded Funds (ETFs) have to execute their buys and sells based on cash received or demanded during the day.
Below is a chart that shows trading volumes on the S&P 500 during the average trading day:
It’s important, therefore, that investors understand this relationship. If they, too, are buying during periods of high trading volume, they may pay more for their stocks than expected. For example, if trading volumes increase, the bid/offer spread could widen. Instead of paying an extra five cents a share to buy or sell, it could change to 10 cents a share. Investors should also avoid trading in the first hour after the market opens as that is another volume surge. We prefer to trade when volumes are lower and there’s more consistency in the markets.