2015issue C0256

Filter futures contracts by liquidity and open interest

The historical workflow ranks listed public futures by how readily outstanding contracts can be transacted. TradersWeek editorial reading: treat futures contract selection as an execution screen, and treat a market as evaluable only after open interest, a volume-adjusted liquidity score, and equal-dollar lot count show that the order can be implemented.

Futures contract selection in this workflow is a search for a market that can be implemented at comparable dollar scale, not a direction call alone.
A liquidity filter keeps only contracts whose activity, open interest, and volume-adjusted capacity can support an executable order over the life of that order.
Relative contract liquidity combines equal-dollar contract count, total open interest, and a volume factor, usually between 1 and 4, that reweights very thin or extremely heavy activity.
Equal-dollar contract counts in the supplied table run from 1 for some full-size equity-index futures to 163 for the two-year note and 179 for eurodollar, so matched dollar exposure can imply very different lot sizes.

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

Screen the contract before the view

The ranking orders listed public futures by how readily their outstanding contracts can be transacted. Futures contract selection, as defined here, means choosing among listed products by placing the trade in a market that can be implemented at comparable dollar scale, not by direction alone.

A liquidity filter is a pre-trade screen that keeps only contracts whose activity, open interest, and volume-adjusted capacity support an executable order over the life of that order. Open interest analysis uses the stock of outstanding futures as a capacity input when judging how readily a market can absorb entry and exit.

How the liquidity ranking is built

Relative contract liquidity is a comparative score of how readily a listed futures market can be transacted, combining a size-adjusted three-year price excursion with open interest and a volume adjustment. A futures liquidity ranking can be built by multiplying contract point value, a three-year maximum price motion, open interest, and a volume adjustment usually between 1 and 4.

Relative contract liquidity is also specified as the equal-dollar contract count times total open interest times a volume factor equal to the greater of 1 or the exponential of natural-log volume divided by natural-log 5000, minus 2. The volume factor is an adjustment, typically from 1 to 4, that reweights very thin or extremely heavy activity when ranking contract liquidity.

Equal-dollar lot size

The equal-dollar contract count is the number of contracts in one market needed to match another market on a shared three-year dollar price-excursion scale. The equal-dollar contract count scales each market by contract value and the largest three-year price change so that every figure in that column sits on the same dollar scale.

Equal-dollar contract counts in the supplied table run from 1 for some full-size equity-index futures to 163 for the two-year note and 179 for eurodollar, so matched dollar exposure can imply very different lot sizes.

Lots needed for equal-dollar futures profit

Traders who want the same dollar profit potential must scale size sharply: one full S&P 500 or Nasdaq contract already matches 163 two-year note lots and 179 eurodollar lots. The bars are the printed “contracts to trade” column from the February 2015 Stocks & Commodities futures-liquidity table, kept in the source’s relative-liquidity order rather than sorted by lot count.Listed U.S. commodity and financial futures · February 2015 liquidity ranking; three-year price excursion window · 2012-01-01T00:00:00.000Z to 2015-02-28T00:00:00.000Z

Each row equalizes contract value times the three-year maximum price excursion, so the counts share the same dollar profit potential. The source’s separate relative-liquidity score (open interest times a volume factor) is the ranking order, not the plotted y-values.

Margin, activity marks, and column comparison

Effective percent margin is dollar margin divided by the contract's three-year dollar price range, then multiplied by 100, and is shown beside ordinary percent margin for capital comparison. It is used to compare capital locked relative to recent range.

The ranking treats each column as comparable only against other entries in that column. The liquidity display treats one or no activity dots as a mark of little trading activity.

A stock-market turnover proxy

For common stocks, period volume divided by shares outstanding is presented as a turnover-rate proxy for trading liquidity. Share turnover is that same ratio, used as a stock-market proxy for how readily an issue changes hands.

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

25 of 51 in the Futures contract selection track

201556-56 pp.Next on Futures contract selectionA two-stage liquidity filter for futures contract selectionEqual-dollar contract count is tick dollar value times the three-year maximum price excursion, so every market in that column is scaled to the same dollar value.

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