Evaluate futures liquidity before committing margin

Screen listings before comparing margin

Editorial interpretation: TradersWeek treats contract selection as an execution screen first. Convert each futures listing into an equal-dollar contract count, then rank it by open interest and a volume factor so margin and range figures are compared only among markets that can actually be entered and exited.

A liquidity filter is a pre-trade screen that keeps contracts whose size, open interest, and recent activity imply they can be transacted, and sets aside listings whose books are too thin to treat as executable. Open interest is the stock of outstanding contracts used, with volume, to judge how much size a market can absorb.

Equal-dollar contract count

Markets can be equalized for comparable dollar excursion by reporting how many contracts must be traded after scaling tick dollar value by that same three-year maximum price move. The equal-dollar contract count is how many contracts of one listing must be traded so that its dollar-value price excursion matches that of another listing after scaling tick value by a multi-year maximum move.

A futures liquidity rank can be formed by multiplying contract point value, a three-year maximum price excursion, open interest, and a volume adjustment.

Rank by relative contract liquidity

Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor, which orders listings from easiest to hardest to transact.

The volume factor is a multiplier bounded below by one that down-weights contracts whose volume sits below a fixed activity reference. It is the greater of 1 and exp(ln(volume)/ln(5000) - 2), so activity below a 5,000-contract reference is down-weighted.

Read percent margin as a pair

Percent margin is posted margin as a share of contract value, read next to the range-adjusted figure instead of as a standalone cheapness score. Effective percent margin is posted margin dollars divided by the multi-year range of the contract's dollar value, then expressed as a percent, so capital use is judged against historical range rather than face value.

Effective percent margin equals posted margin dollars divided by the three-year range of contract dollar value, then multiplied by one hundred. Percent margin and effective percent margin are paired so posted leverage can be compared with range-adjusted capital use before a market is chosen.

Compare only within a column

Each column is a proportional measure and is meaningful only when compared with other entries in that same column.

Equity trading activity can serve as a liquidity proxy when period volume is expressed as a percentage of shares outstanding, that is, share turnover. Share turnover is period equity volume divided by shares outstanding, used as a proxy for how readily a stock can be traded.