2017issue C0658

Filter futures contracts by liquidity and margin cost

An archive listing ranks futures by activity dots, open-interest-scaled size, and margin versus a three-year dollar range. Editorial: treat those marks as an execution screen before a market enters the idea notebook.

Editorial: keep a futures market out of the idea notebook until it clears activity marks, an open-interest-scaled size check, and a margin-versus-range cost comparison.
Relative contract liquidity appears as activity dots: more dots mean heavier trading, one dot or none means little activity, and markets at the top of that order are the easiest to buy and sell.
Equal-dollar contract count scales listed markets to the same three-year dollar opportunity. Effective percent margin is dollar margin divided by the three-year dollar price range, then multiplied by 100.
Each column is a proportional comparison and is meaningful only against other values in the same column.

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Current trackCommission analysis37 readings Liquidity filter118 readings Open interest analysis118 readings

Contract selection as an execution screen

The archive workflow ranks listed futures before they are treated as executable. Liquidity is marked with activity dots. Size is scaled to a common dollar opportunity. Margin is compared with the contract three-year dollar price range.

Editorial: teach contract selection as an execution screen first. A market may enter the idea notebook only after it clears activity marks, an open-interest-scaled size check, and a margin-versus-range cost comparison.

Editorial: those three checks map to a Liquidity filter on activity, an Open interest analysis on scaled size versus outstanding positions, and a Commission analysis on implementation cost through effective percent margin. Each is used to choose an executable order and account for implementation cost.

Activity marks and relative contract liquidity

The futures comparison marks relative liquidity with a count of activity dots. More dots mean heavier trading, and one dot or none means little activity. Relative contract liquidity is a cross-market rank built from equal-dollar contract count, open interest, and a volume adjustment, shown as activity marks from easiest to hardest to trade.

That liquidity rank multiplies contract point value, a three-year maximum price move, open interest, and a volume factor usually set between 1 and 4. The archive also defines relative contract liquidity as the equal-dollar contract count times total open interest times a volume factor equal to the greater of 1 or exp(ln volume / ln 5000 - 2).

Markets at the top of the liquidity order are the easiest to buy and sell and those at the bottom the hardest.

Scaled size and effective percent margin

The equal-dollar-profit contract count equals tick dollar value times the three-year maximum price excursion, so listed markets are scaled to the same dollar opportunity. Equal-dollar contract count is how many contracts of one market must be traded to match another market three-year dollar price excursion.

Effective percent margin equals dollar margin divided by the three-year dollar price range of the contract, then multiplied by 100. It is used to compare capital locked per unit of historical range.

A June 2017 listing

In the June 2017 listing, the S&P 500 E-mini showed a 4.4 percent margin, a 17.9 effective percent margin, and a 2-contract equal-dollar count, while Eurodollar required 22 contracts and the Japanese yen showed a 35.6 effective percent margin.

For listed shares, activity used as a liquidity proxy is period volume expressed as a percentage of shares outstanding, which is the share turnover rate.

Posted and effective percent margin, June 2017 futures

Each pair of bars is one row from the June 2017 Technical Analysis of Stocks & Commodities futures-liquidity table, kept in that listing’s liquidity order. The primary series is effective percent margin (exchange margin dollars divided by the contract’s three-year dollar range); the reference series is posted percent margin. Yen, silver and gold lock up a large share of the three-year range as margin, while WTI, Brent, lean hogs and hard red wheat screen cheaper on that range-adjusted test even when posted margin looks similar. Rates and eurodollars look cheap on the posted column but not once margin is scaled to range.Listed U.S. futures, front-month as of the June 2017 listing · June 2017 listing

Rows follow the printed relative-liquidity ranking (activity dots are not converted to a series). Effective percent margin is margin dollars divided by the three-year dollar range of the contract, times 100. Both percent columns are proportional measures and are meant to be compared across rows of the same listing, not read as standalone hurdle rates.

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

25 of 32 in the Commission analysis track

201727-27 pp.Next on Commission analysisHow residency rules raise futures implementation costsEditorial: run commission-analysis only after asking which desks are allowed to hold the account. A route no permitted desk can work is not executable, whatever the displayed book shows.

All readings on this track · 32 readings

By fieldLiquidity and costs119 readings By year2017100 readings

All 37 readings tagged Commission analysis

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