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2017issue C0758

Constructing a futures liquidity filter for contract selection

A futures liquidity rank multiplies contract point value, a three-year maximum price move, open interest, and a volume adjustment, then uses equal-dollar contract count to order listings by how easily a two-sided trade can be completed.

  • A futures liquidity rank is assembled by multiplying contract point value, a three-year maximum price move, open interest, and a volume adjustment usually set between 1 and 4.
  • Equal-dollar contract count states how many contracts of each market match the same three-year dollar range, so size sits on one common profit scale.
  • Relative contract liquidity multiplies that count by total open interest and a volume factor, then orders markets from easiest to hardest to buy and sell.
  • Effective percent margin expresses posted margin as a percentage of the three-year dollar range so capital lockup can be compared across listings.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

The archive builds a futures liquidity rank so contract choice can be filtered by whether a listing can be entered and exited. The inputs are contract point value, a three-year maximum price move, open interest, and a volume adjustment.

Open interest is used as an open-interest weight. It is the count of outstanding positions, taken as a capacity input so a theoretically large tick range is not selected in a contract few traders hold.

How the liquidity rank is assembled

A futures liquidity rank can be assembled by multiplying contract point value, a three-year maximum price move, open interest, and a volume adjustment usually set between 1 and 4.

Equal-dollar contract count

An equal-dollar sizing column counts how many contracts of each market are needed to match the same three-year dollar range, so every entry in that column sits on one common profit scale.

The equal-dollar contract count is the number of contracts of one market needed to match another market's three-year dollar range, so size is compared on one money scale.

Contracts needed for equal dollar profit

Among the listed futures, Eurodollar needs 23 contracts to match the same three-year dollar profit as one WTI crude oil contract, while 5-year and 2-year notes sit near 17–18. Those counts come from the Trading Liquidity: Futures table: tick dollar value times the three-year maximum price excursion. A trader reading this as a filter should treat a high count as more contracts to move for the same dollar exposure, not as a ranking of how easy a two-sided fill is.
Among the listed futures, Eurodollar needs 23 contracts to match the same three-year dollar profit as one WTI crude oil contract, while 5-year and 2-year notes sit near 17–18. Those counts come from the Trading Liquidity: Futures table: tick dollar value times the three-year maximum price excursion. A trader reading this as a filter should treat a high count as more contracts to move for the same dollar exposure, not as a ranking of how easy a two-sided fill is.Listed commodity and financial futures · as of the July 2017 issue · 2014-01-01T00:00:00.000Z to 2017-12-31T00:00:00.000Z

The source equalizes all listings to the same three-year dollar-profit target; relative liquidity dots are a separate open-interest and volume factor and are not plotted here.

Relative contract liquidity

Relative contract liquidity is the equal-dollar contract count multiplied by total open interest and by a volume factor equal to the greater of 1 and the exponential of log volume over log 5000, minus 2.

The volume factor is a floor-at-one exponential adjustment on traded volume that down-weights thin activity and up-weights heavy activity inside the liquidity rank.

The score is comparative. It scales equal-dollar contract size by outstanding positions and a volume adjustment, then supports an ordering of markets by how easily a two-sided trade can be completed.

Effective percent margin

Effective percent margin is posted margin dollars divided by the three-year dollar range of the contract, then multiplied by 100, so margin outlay can be compared across markets.

Posted margin is thereby expressed as a percentage of the contract's three-year dollar price range and used to compare capital lockup across listings.

Ordering markets as a filter

Markets are ordered so those at the top of the relative-liquidity list are the easiest to buy and sell and those at the bottom are the hardest, making the list a filter for executable contract choice.

A different construction for equities

Equity liquidity is treated as a different construction: period volume as a percentage of shares outstanding, read as a share-turnover rate rather than an open-interest-weighted futures score.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
34 of 51 in the Futures contract selection track
201758-58 pp.Next on Futures contract selectionFilter futures by liquidity, open interest, and equal-dollar sizeA liquidity filter is a pre-trade screen that ranks listed futures by how easily a full book can be bought and sold, using range, volume, and outstanding contracts rather than a directional view.
All readings on this track · 51 readings
  1. 2002Single-stock futures and the sleeve that belongs on the ticket
  2. 2007Ethanol futures liquidity lagged the policy boom
  3. 2010Relative liquidity ranking for futures contract selection
  4. 2010A liquidity filter for executable futures contract selection
  5. 2010Screening futures by liquidity, open interest, and equal-dollar size
  6. 2010Ranking futures liquidity for executable contract choice
  7. 2010Liquidity and open interest screens for futures selection
  8. 2010Ranking futures by open interest and equal-dollar liquidity
  9. 2011Liquidity filter for futures contract selection
  10. 2011Futures liquidity rank as an execution filter
  11. 2011Silver contract-selection by size, hours, and carry
  12. 2011Filtering futures by liquidity, open interest and equal-dollar size
  13. 2011Liquidity and open interest as a screen for futures selection
  14. 2011A futures liquidity filter for equal-dollar execution
  15. 2012Ranking futures liquidity before choosing a contract
  16. 2013Liquidity-first futures contract selection
  17. 2013Equal-dollar liquidity filter for futures contract choice
  18. 2013Futures liquidity filters for executable contract selection
  19. 2013Filter listed futures by liquidity and open interest first
  20. 2013Ranking listed futures by liquidity and equal-dollar size
  21. 2013A pre-trade liquidity filter for futures contract selection
  22. 2014Why commodity futures are trades, not long-horizon holdings
  23. 2014Rank futures liquidity before selecting the contract
  24. 2014Filter futures by equal-dollar liquidity and open interest
  25. 2015Filter futures contracts by liquidity and open interest
  26. 2015A two-stage liquidity filter for futures contract selection
  27. 2015Screen futures contracts by liquidity and open interest
  28. 2015Equal-dollar futures choice as a liquidity filter
  29. 2016Evaluate futures liquidity before contract selection
  30. 2016Ranking futures liquidity before you pick the contract
  31. 2016Filter listed futures by relative liquidity and open interest
  32. 2017Evaluating futures liquidity for executable contract selection
  33. 2017A relative liquidity rank for choosing an executable futures contract
  34. 2017Constructing a futures liquidity filter for contract selection
  35. 2017Filter futures by liquidity, open interest, and equal-dollar size
  36. 2017Rank futures liquidity before contract selection
  37. 2017Build a futures liquidity filter from open interest
  38. 2018Evaluating futures liquidity for executable contract choice
  39. 2018Volume-confirmed pivots versus unregulated spot exposure
  40. 2018Executable futures selection from a 2018 liquidity board
  41. 2018Evaluate futures liquidity before contract selection
  42. 2018Open-interest liquidity filter for futures contract selection
  43. 2018Construct a futures liquidity filter from open interest and range
  44. 2018Ranking futures by liquidity, open interest, and equal-dollar cost
  45. 2019Ranking futures liquidity before contract selection
  46. 2019Ranking futures liquidity before you pick a contract
  47. 2019Screening futures by equal-dollar liquidity
  48. 2020Building an equal-dollar futures liquidity screen
  49. 2020Use liquidity and open interest as a futures execution screen
  50. 2020Compact index futures as diversified contract selection
  51. 2020Filter futures by range-scaled liquidity and open interest
By fieldLiquidity and costs46 readingsBy year201710 readings
All 51 readings tagged Futures contract selection
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