Equal-dollar liquidity filter for futures contract choice

A screen before a market view

Listed futures can look attractive on technical grounds and still be a poor place to put an order. The historical workflow treats that gap as a liquidity problem. A liquidity filter is a pre-trade screen that keeps only contracts whose activity, depth, and cost profile can support an order through its life cycle.

Open interest analysis uses outstanding contract inventory as a depth input so a rank reflects standing size, not only recent prints. Futures contract selection then chooses among listed markets after placing them on a common dollar, margin, and liquidity footing.

Equal-dollar size and relative liquidity

An equal-dollar size for each market is the product of tick dollar value and the three-year maximum price excursion. Those sizes are treated as sharing the same dollar potential. Equal-dollar contract count is how many contracts of one market are needed to match another market's three-year dollar excursion.

Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor, then ordered so higher values indicate easier execution. A listed-futures liquidity rank can be formed the same way by multiplying contract point value, a three-year maximum price move, open interest, and a volume factor usually set between 1 and 4.

The volume factor is a multiplier, typically from 1 to 4, that does not reward thin activity. It is constructed as the greater of 1 or the exponential of the natural log of volume divided by the natural log of 5000, minus 2.

Margin, thin names, and how columns are read

Effective percent margin equals margin dollars divided by the three-year dollar range of the contract, then multiplied by 100. It is initial margin expressed as a percentage of the contract's three-year dollar price range rather than as a raw posted rate.

Contracts marked with one liquidity indicator or none are treated as thinly traded and deprioritized for speculative execution. Figures in each comparison column are proportional measures and are intended to be read only against other markets in that same column.

Share-turnover as an equity analogue

For equities, trading activity is treated as a liquidity proxy equal to period volume as a share of shares outstanding. Share-turnover is that ratio, used as a stock-market analogue of trading liquidity.