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2016issue C0158

Evaluate futures liquidity before contract selection

A listed-futures ranking multiplies contract point value, a three-year maximum price motion, open interest, and a volume adjustment so each candidate can be compared on a shared dollar, activity, and margin scale before a contract is chosen.

  • A listed-futures liquidity ranking multiplies contract point value, a three-year maximum price motion, open interest, and a volume adjustment so candidates can be compared before a contract is chosen.
  • Equal-dollar contract count uses tick dollar value and the three-year maximum price excursion so different futures sit on one potential dollar scale.
  • Open interest is applied after that scaling, and a volume factor reduces thin activity and raises heavy activity, with a floor at one.
  • Effective percent margin and other column scores are proportional and can be read only against other contracts in the same column.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

Judge a contract by whether a comparable exposure can be implemented

A listed-futures liquidity ranking can be formed by multiplying contract point value, a three-year maximum price motion, open interest, and a volume adjustment for unusually thin or heavy activity.

Futures contract selection then means choosing among listed futures by placing each market on a shared dollar-profit and margin-efficiency scale instead of treating every contract as interchangeable.

Posted vs effective percent margin, June 2020 futures list

Each bar is a listed futures contract in the June 2020 liquidity ranking, from most liquid at the left. Posted percent margin is the exchange haircut; effective percent margin divides that dollar margin by the three-year range of contract value. Gaps such as crude oil (very high posted, modest effective) versus the yen (cheap posted, very high effective) show why a contract can look inexpensive to margin and still be a poor use of capital. Figures come from the printed Trading Liquidity table, not from the unpublished dot-score.
Each bar is a listed futures contract in the June 2020 liquidity ranking, from most liquid at the left. Posted percent margin is the exchange haircut; effective percent margin divides that dollar margin by the three-year range of contract value. Gaps such as crude oil (very high posted, modest effective) versus the yen (cheap posted, very high effective) show why a contract can look inexpensive to margin and still be a poor use of capital. Figures come from the printed Trading Liquidity table, not from the unpublished dot-score.Listed commodity and financial futures · June 2020 listing · 2020-06-01T00:00:00.000Z to 2020-06-30T00:00:00.000Z

The source ranks rows by relative contract liquidity (contracts-to-trade times open interest times a volume factor). That composite is not printed as a number, so this chart keeps the published row order and plots the two margin columns. Effective percent margin uses a three-year lookback.

Form one ranking from size, range, and activity

Relative contract liquidity is a descending comparison score equal to the equal-dollar contract count times total open interest times a volume factor. The volume factor is an activity adjustment, typically in a narrow integer band and floored at one, that reduces very thin volume and raises very heavy volume.

Relative activity marks order contracts so the most marked markets are treated as easier to buy and sell, while a single mark or none indicates thin activity. A liquidity filter keeps contracts whose size, historical range, activity, and costs imply they can be entered and exited, and sets aside names whose activity marks show a thin book.

Scale open interest to a common dollar exposure

An equal-dollar contract count is tick dollar value times the three-year maximum price excursion, so different futures can be compared at a common potential dollar scale. It states how many contracts of one future must be traded to match another future's three-year dollar price excursion.

Open interest analysis weights how easily a market can be traded by outstanding contract inventory, after scaling for how many contracts are needed to match a common dollar exposure.

Compare margin intensity only inside its column

Effective percent margin is posted margin dollars divided by the contract's three-year dollar range, expressed as a percentage so margin intensity can be compared across markets with different ranges.

Each liquidity or margin column is a proportional score that is interpretable only against other contracts in the same column.

In listed shares, period volume as a percentage of shares outstanding is used as a turnover-rate proxy for trading liquidity. Editorial: that share-turnover proxy is a listed-share stand-in for trading liquidity. It is not the futures ranking described here.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
29 of 51 in the Futures contract selection track
201655-55 pp.Next on Futures contract selectionRanking futures liquidity before you pick the contractTrading liquidity can be a first-pass filter that sets thinly traded listings aside before a speculative order is sized.
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 year20165 readings
All 51 readings tagged Futures contract selection
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