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2016issue C0721

Comparing dollar-index futures execution costs and liquidity

In 2016 two U.S. venues listed dollar-basket-futures on the same idea. The archive treated the overlap as a futures-contract-selection choice, then a commission-analysis of data-fee tiers and an exchange-fee-holiday, then a liquidity-filter on a thin book and missing options.

  • In 2016 the same dollar-basket idea sat on two U.S. venues, so futures-contract-selection had to compare currency weights, rebalancing rules, and option-overlay-availability before either listing was treated as the trade.
  • Commission-analysis added each venue's data-fee-tier and any exchange-fee-holiday to brokerage commission so all-in implementation cost was visible before a venue was chosen.
  • The incumbent basket was described as about 60 percent euro-weighted with routine futures activity and listed options, while the newer basket used a euro weight nearer 30 percent, added selected emerging-market currencies, and rebalanced annually.
  • The newer listing was described as thinly traded with designated market-maker bids and offers, so a liquidity-filter still treated a thin book, a news-window gap, and the lack of listed options as reasons not to send the order.
Entries in this reading3 entries
Current trackCommission analysis37 readingsFutures contract selection57 readingsLiquidity filter118 readings

Two listings, one dollar-basket idea

In 2016 a long-listed dollar-index futures contract on one U.S. venue coexisted with a newly listed Bloomberg Dollar Spot Index futures contract on another venue. Both contracts were dollar-basket-futures: each expressed the U.S. dollar against a weighted mix of other currencies rather than against one pair. The archive treated that overlap as a reason to make an explicit futures-contract-selection choice.

First gate: weights, rebalancing, and options

Futures-contract-selection meant choosing which listed dollar-basket futures specification to use after comparing currency weights, rebalancing rules, and whether options exist to complete or hedge the trade.

The incumbent dollar-index basket was described as about 60 percent euro-weighted. The newer listing used a euro weight nearer 30 percent and added selected emerging-market currencies treated as liquid enough to include.

The newer listing was described as rebalanced annually against official reserve and cross-border settlement data so its currency mix could change with spot-market cash flows rather than stay fixed.

Option-overlay-availability also differed. The incumbent contract was described as having a functioning options market. The newer listing had no listed calls and puts on the same dollar-basket contract for hedging or a limited-risk overlay.

Second gate: data-fee tiers and an exchange-fee holiday

Commission-analysis meant adding live-data subscription tiers and exchange transaction fees to brokerage commission so all-in implementation cost was visible before a venue was chosen.

Live price-data access for the incumbent venue's relevant U.S. division was stated at 110 dollars per month, compared with 85 dollars per month for professional users of the newer venue and as little as 3 dollars per month for nonprofessional users on a top-tier data package. Those charges are the data-fee-tier: the monthly charge an exchange levies for live prices, often split by professional versus nonprofessional status and by which products sit on that data feed.

The newer venue waived its per-contract exchange fees through the close of the third quarter of 2016 while brokerage commissions still applied. That waived exchange cost was characterized as a few dollars per contract. That combination is an exchange-fee-holiday: a temporary waiver of the exchange's per-contract transaction fee that leaves brokerage commission still payable.

Third gate: a thin book and news-window gaps

A liquidity-filter meant screening a contract for two-sided futures access and usable option overlays, and treating a thin book or a news-window gap as a reason not to send the order.

The incumbent contract was described as having enough futures activity for routine entry and exit plus a functioning options market.

The newer listing was described as thinly traded, with designated market makers posting competitive bids and offers so that, outside high-volatility or news windows, two-sided futures access was expected to be relatively straightforward.

Editorial reading: a competitive two-sided quote on a quiet tape is not the same screen as a book that can still be used when volatility or news arrives. With no listed options, the newer contract also lacked a usable option overlay on the same specification.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
22 of 32 in the Commission analysis track
201656-56 pp.Next on Commission analysisA futures liquidity ranking as a screen for executable ordersRelative-contract-liquidity is shown as a descending dot count, so markets at the top of the list are presented as easier to buy and sell than markets at the bottom.
All readings on this track · 32 readings
  1. 1985Matching ticket size to negotiable commission schedules
  2. 1985Minimum tickets can price a small book out of its own exit
  3. 1992Stop-order slippage as an execution cost filter
  4. 1993Cost-aware walk-forward evaluation of pattern-detector signals
  5. 2001Audit high-turnover operating conditions as one procedure
  6. 2002Front-load futures commission and slippage
  7. 2005Inactive account fees as hidden implementation cost
  8. 2010A pre-trade liquidity screen for futures contracts
  9. 2011Currency option venues, spreads, clearing, and premium cost
  10. 2012Filter futures contracts by liquidity and implementation cost
  11. 2012Futures commission versus one tick of cost
  12. 2012Ranking futures liquidity for executable orders
  13. 2013Filter option day trades by spread, volume, and fees
  14. 2013Filter futures by liquidity, open interest, and effective margin
  15. 2014Book futures data fees as implementation cost
  16. 2015Use a futures liquidity rank as a pre-trade checklist
  17. 2015Filter unexecutable futures by liquidity, open interest, and margin
  18. 2015Futures liquidity ranking as an execution filter
  19. 2015Filtering option trades by bid-ask width
  20. 2016Exchange quote fees as execution costs and liquidity filters
  21. 2016Filter futures by liquidity, open interest, and margin cost
  22. 2016Comparing dollar-index futures execution costs and liquidity
  23. 2016A futures liquidity ranking as a screen for executable orders
  24. 2017Filter a futures board by liquidity, open interest, and implementation cost
  25. 2017Filter futures contracts by liquidity and margin cost
  26. 2017How residency rules raise futures implementation costs
  27. 2018Screen listed futures by liquidity, open interest, and margin
  28. 2018Contract selection is the first filter on competing bitcoin futures
  29. 2018Filter futures execution by liquidity and margin
  30. 2018Commission analysis for brokerage execution costs
  31. 2019Ranking futures liquidity before you size the order
  32. 2020Brokerage selection as an implementation-cost problem
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