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2014issue C1256

Filter futures by equal-dollar liquidity and open interest

Treat listed futures as a two-gate execution screen: rescale every market to the same three-year dollar range, then veto names whose open interest and volume cannot carry that scaled size.

  • An equal-dollar column multiplies contract value by the largest three-year price change so every listed market is scaled to the same dollar opportunity.
  • Relative contract liquidity multiplies that equal-dollar contract count by total open interest and a volume factor, then orders markets from easiest to hardest to trade.
  • Each ranking column is a proportional measure and is only meaningful when one listed contract is compared with others in the same column.
  • A wide historical range is not an executable market if open interest and volume cannot support the scaled size.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

Two gates for contract choice

Editorial interpretation: futures contract selection can be read as a two-gate execution screen. The first gate rescales every listed market to the same dollar of three-year range. The second gate is a liquidity filter that uses open interest analysis to veto names whose open interest and volume cannot carry that scaled size.

An equal-dollar column is built by multiplying contract value by the largest price change observed over the prior three years, so every listed market is scaled to the same dollar opportunity. Equal-dollar contract count then asks how many contracts of one futures market are needed to match another market’s three-year dollar range.

How relative liquidity is assembled

A relative futures-liquidity score can be assembled by multiplying contract point value, a three-year maximum price excursion, open interest, and a volume adjustment that is usually set between 1 and 4.

Relative contract liquidity equals the equal-dollar contract count times total open interest times a volume factor. That product is used to order markets from easiest to hardest to trade.

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. It is a volume adjustment against a 5000-contract baseline, floored at 1.

How to read the ranking columns

Effective percent margin is dollar margin divided by that three-year contract-dollar range and multiplied by 100. The column compares how much margin is tied up relative to historical range.

Each ranking column is a proportional measure and is only meaningful when one listed contract is compared with others in the same column. A single cell does not stand alone as a verdict on one name.

A 2014 ranking snapshot

In the 2014 snapshot, the E-mini S&P 500 sat at the top of the relative-liquidity ranking, while several contracts at the bottom carried only a single activity mark.

In that snapshot, 171 two-year note contracts and 173 eurodollar contracts were required to match the equal-dollar opportunity represented by 5 E-mini S&P 500 contracts.

A listed-share liquidity proxy

For listed shares, volume as a percentage of shares outstanding can be treated as a turnover-rate proxy for trading liquidity. Share turnover is that same idea: listed-share volume over a period as a percentage of shares outstanding.

Contracts needed for the same three-year dollar range

To hold the same three-year dollar of range, the December 2014 table required 173 Eurodollar and 171 two-year note contracts versus one full-size S&P 500 or Nasdaq 100. Bars keep the source liquidity rank from most to least tradeable, so a short bar low on the list is a wide historical range that still failed the open-interest and volume screen. Every figure is the printed Contracts to Trade for Equal Dollar Profit column.
To hold the same three-year dollar of range, the December 2014 table required 173 Eurodollar and 171 two-year note contracts versus one full-size S&P 500 or Nasdaq 100. Bars keep the source liquidity rank from most to least tradeable, so a short bar low on the list is a wide historical range that still failed the open-interest and volume screen. Every figure is the printed Contracts to Trade for Equal Dollar Profit column.Listed commodity and financial futures · December 2014 snapshot

Each bar is tick dollar value times the three-year maximum price excursion, so the dollar of historical range is the same in every market. Relative liquidity (open interest times a volume factor) is the table sort order, not the bar height.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
24 of 51 in the Futures contract selection track
201556-56 pp.Next on Futures contract selectionFilter futures contracts by liquidity and open interestFutures contract selection in this workflow is a search for a market that can be implemented at comparable dollar scale, not a direction call alone.
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 year20148 readings
All 51 readings tagged Futures contract selection
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