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2020issue C1158

Equal-dollar futures liquidity and an effective margin screen

A 2020 listed-futures workflow scales each contract to the same three-year dollar range, ranks residual liquidity from that count, open interest, and a volume factor, then places listed percent margin beside effective percent margin.

  • An equal-dollar contract count scales each listed market to the same three-year dollar range, so a one-lot position is not a common economic size across markets.
  • Relative contract liquidity multiplies that count by total open interest and a volume factor. Contracts with one activity mark or none are treated as thinly traded and less executable for speculative use.
  • Effective percent margin divides dollar margin by the same three-year dollar range. Listed percent margin and effective percent margin need not move together.
  • Each constructed column is a proportional measure and is comparable only to other values in the same column.
Entries in this reading3 entries
Current trackMargin management68 readingsFutures contract selection91 readingsLiquidity filter139 readings

What the 2020 workflow constructs

The archive workflow builds three proportional columns for listed futures instead of treating a one-lot order as a shared economic size.

Equal-dollar contract counts, relative contract liquidity, and effective percent margin are constructed from the same three-year dollar range. Futures contract selection then compares equal-dollar lot counts and relative liquidity rather than one-lot convenience.

Equal-dollar contract counts

An equal-dollar contract count is constructed as tick dollar value times the three-year maximum price excursion, so each listed market is scaled to the same historical dollar range.

That count is the number of contracts of one futures market needed to match another market’s three-year maximum dollar excursion. In the 2020 snapshot the counts run from 1 for the December Ultra T-Bond to 50 for December corn, so a one-lot position is not a common economic size across markets.

Relative contract liquidity

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

Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor. The volume factor is the greater of 1 or the exponential of the natural log of volume divided by the natural log of 5000, minus 2.

The liquidity filter is a pre-trade screen that ranks or rejects a listed futures contract by how easily its book can be entered and exited, using activity marks, open interest, and a volume adjustment. Contracts showing one activity mark or none are treated as thinly traded and therefore less executable for speculative use.

Effective percent margin beside listed percent margin

Effective percent margin is constructed by dividing dollar margin by the three-year dollar price range of the contract and multiplying by 100.

Percent margin is exchange margin as a share of contract value, kept beside effective percent margin so deposit size is not read in isolation. Margin management bounds capital before entry by reading those two figures together, with effective percent margin scaled to the contract’s own multi-year dollar range.

Listed percent margin and effective percent margin need not move together. The December 2020 S&P 500 E-Mini shows 8 versus 23.3, while November 2020 WTI crude shows 15.2 versus 7.6.

Compare only inside a column

Each constructed column is a proportional measure and is only comparable to other values in the same column.

Listed versus effective percent margin, November 2020 futures

Listed percent margin can look cheap while effective percent margin is large, because the latter divides the same dollar deposit by each contract’s three-year dollar range. Yen, Mexican peso, sterling, coffee, and euro FX stand out as range-expensive; WTI and VIX are the reverse. Values are the November 2020 Trading Liquidity: Futures table in the source, not a redrawn graphic.
Listed percent margin can look cheap while effective percent margin is large, because the latter divides the same dollar deposit by each contract’s three-year dollar range. Yen, Mexican peso, sterling, coffee, and euro FX stand out as range-expensive; WTI and VIX are the reverse. Values are the November 2020 Trading Liquidity: Futures table in the source, not a redrawn graphic.Listed commodity and financial futures · November 2020 issue (near-dated contracts)

Effective percent margin is margin dollars divided by the three-year dollar range of the contract, times 100. The source ranks rows by residual liquidity and states that each column is meaningful only against other rows in that column. Contract counts and the dot liquidity rank are omitted here because they are different units.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
25 of 25 in the Margin management track
1993Track finished · Next track: Market at closeThursday's last S&P 500 print is not the Friday settlement10 readings
All readings on this track · 25 readings
  1. 1988When action-seeking replaces the decision process
  2. 1997Convert a market story into a testable decision process
  3. 2004Posted margin as the scarce input of an option-income write
  4. 2004Capping futures leverage to intended share exposure
  5. 2005Currency execution costs hide in spreads and margin
  6. 2006Daily margin as a leverage filter
  7. 2006A commodity sleeve is a contract-design choice
  8. 2007Bounding futures risk with stops, trails, and margin
  9. 2010Currency futures versus forex on spread, margin, and micros
  10. 2010Enforced margin as the real futures trade guarantee
  11. 2010Choose mini or standard futures before the first fill
  12. 2012Segregated margin is an incomplete exposure filter
  13. 2013Posted tickets hide margin and fill gates
  14. 2013Portfolio margin calls versus pair-hedge leverage locks
  15. 2015Forex execution checks for fills, margin, and leverage
  16. 2015Cheaper margin is not a currency leverage edge
  17. 2015Cheap daytrading margin is not a risk discount
  18. 2016Futures liquidity filter with equal-dollar size and effective margin
  19. 2016Cap futures leverage before margin turns into debt
  20. 2016Gold option income as a margin-sizing problem
  21. 2017Electronic matching changed what a futures account could carry
  22. 2018Broker margin-upcharges can force an option-income exit
  23. 2019Inspect execution cost and margin bounds before cycle timing
  24. 2020Treat automatic futures gearing as a pre-entry filter
  25. 2020Equal-dollar futures liquidity and an effective margin screen
By fieldLiquidity and costs155 readingsBy year2020165 readings
All 68 readings tagged Margin management
Also on Margin management5 readings
2016Futures liquidity filter with equal-dollar size and effective margin2002Single-stock futures: contract selection and the margin box2004Capping futures leverage to intended share exposure2006A commodity sleeve is a contract-design choice2010Currency futures versus forex on spread, margin, and micros