2018issue C0258

Evaluating futures liquidity for executable contract choice

A 2018 archive workflow ranks listed futures by how much open interest and volume stand behind an equal-dollar historical range, then places effective percent margin beside raw margin so the vehicle is chosen for implementability.

A liquidity filter ranks listed futures from contract point value, a three-year price-motion estimate, open interest, and a volume factor usually between 1 and 4.
Equal-dollar profit count scales each listing to the same dollar opportunity, and effective percent margin sits beside raw percent margin to compare capital use against that same three-year range.
Relative contract liquidity is only a within-column comparison of how easily size can be traded. Markets with the densest liquidity marks are treated as the most active, and those with one mark or none as thinly traded and less suitable for speculative execution.
In the 2018 ranking, the S&P 500 E-mini required two contracts for equal-dollar profit, posted a 3.7 percent margin and an 11.3 effective percent margin, and sat at the top of the relative-liquidity order.

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Liquidity filter46 readings Open interest analysis46 readings Current trackFutures contract selection51 readings

A pre-trade ranking of listed futures

A liquidity filter is a comparative pre-trade ranking of how easily a listed futures contract can be bought or sold relative to other contracts. Open interest analysis uses outstanding contract inventory, scaled with volume, as an input to that ranking. Futures contract selection is the later choice of which listed futures market to use after comparing relative liquidity, equal-dollar size, and margin efficiency.

How the comparative score is built

A comparative futures liquidity score can be built from contract point value, a three-year historical price-motion estimate, open interest, and a volume adjustment usually between 1 and 4. The volume factor is a volume adjustment, often between 1 and 4, that down-weights thin activity and up-weights heavy activity. In this workflow the volume factor is the greater of 1 and the exponential of the natural log of volume divided by the natural log of 5000, minus 2.

Markets with the densest liquidity marks are treated as the most active, while those with one mark or none are treated as thinly traded and less suitable for speculative execution.

Equal-dollar size and effective percent margin

The equal-dollar profit count is how many contracts of one market are needed to match another market's three-year dollar range. The equal-dollar contract count multiplies contract value by the largest price change observed over three years so that every listing in that column is scaled to the same dollar opportunity.

Effective percent margin is the dollar margin divided by the three-year dollar price range of the contract, times 100, and is shown beside raw percent margin to compare capital use. That figure is dollar margin divided by the three-year dollar range of the contract, expressed as a percent.

Effective versus listed percent margin for futures in 2018 liquidity order

Keep the February 2018 liquidity rank and compare listed percent margin with effective percent margin, which scales margin dollars by each contract’s three-year dollar range. Notes and eurodollars look cheap on the raw column, yet effective margin pulls many markets into a tighter band, while silver, gold, cotton and natural gas consume much more of their historical range. Values are the exact percent-margin and effective-percent-margin columns from the TASC Trading Liquidity: Futures table.Listed commodity and financial futures · February 2018 listing · 2018-01-01T00:00:00.000Z to 2018-12-31T00:00:00.000Z

Effective percent margin is margin dollars divided by the three-year contract dollar price range, times 100. Names stay in the source relative-liquidity order, most executable first.

Relative contract liquidity in the 2018 order

Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor, and it is meaningful only as a within-column comparison of how easily size can be traded. The same quantity is then used to order markets from easiest to hardest to trade.

In the supplied 2018 ranking, the S&P 500 E-mini required two contracts for equal-dollar profit, posted a 3.7 percent margin and an 11.3 effective percent margin, and sat at the top of the relative-liquidity order.

Share-market liquidity is framed analogously as period volume divided by shares outstanding, a turnover rate offered as a proxy for how easily equity can be traded.

Educational research material, not investment advice. Historical source context does not establish present-day performance.

38 of 51 in the Futures contract selection track

201832-37 pp.Next on Futures contract selectionVolume-confirmed pivots versus unregulated spot exposureVolume at a short-horizon support or resistance zone decides whether a pivot-level is significant enough to guide later bias.

All readings on this track · 51 readings

By fieldLiquidity and costs46 readings By year201810 readings

All 51 readings tagged Futures contract selection

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A pre-trade ranking of listed futures

How the comparative score is built

Equal-dollar size and effective percent margin

Relative contract liquidity in the 2018 order

An analogous share-market turnover rate