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2015issue C1156

Filter futures ideas by ranked contract liquidity

A historical ranking multiplies equal-dollar contract count, open interest, and a volume factor so listed futures can be compared before an order is placed. Markets at the top of the relative-liquidity ranking are presented as easier to buy and sell than those at the bottom.

  • A liquidity filter is a ranked pre-trade screen that keeps only futures contracts whose activity, size, and cost profile can absorb an intended order.
  • Relative contract liquidity is the product of the equal-dollar contract count, total open interest, and a volume factor, and markets at the top of that ranking are presented as easier to buy and sell.
  • Open interest analysis scales the score by outstanding contracts, and volume confirmation applies an activity multiplier commonly between 1 and 4.
  • Each column is a proportional comparison and is meaningful only against other contracts in the same column.
Entries in this reading3 entries
Current trackVolume confirmation54 readingsLiquidity filter118 readingsOpen interest analysis118 readings

A ranked pre-trade screen

A liquidity filter is a ranked pre-trade screen that keeps only futures contracts whose activity, size, and cost profile can absorb an intended order.

In the historical workflow, a futures liquidity rank can be assembled by multiplying contract point value, the largest price move implied by three years of history, open interest, and a volume adjustment usually set between 1 and 4.

Relative contract liquidity is a descending sort of how readily an entire listed market can be traded. Markets at the top of the relative-liquidity ranking are presented as easier to buy and sell than those at the bottom.

How the score is assembled

Relative contract liquidity is the product of the equal-dollar contract count, total open interest, and a volume factor.

Open interest analysis scales a liquidity score by outstanding contracts so thin inventory is not treated as equally executable as a deep book.

Volume confirmation is an activity multiplier, commonly between 1 and 4, that lifts or cuts the rank when recent volume is unusually high or low. 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 the larger of 1 and an exponential transform of volume relative to a 5000-contract reference, used to penalize or emphasize activity extremes.

Equal-dollar size, margin, and activity marks

An equal-dollar column is produced by multiplying contract value by the largest price change seen over the prior three years so every entry in that column represents the same dollar potential. The equal-dollar contract count equals tick dollar value times the three-year maximum price excursion.

Contracts-to-trade is how many contracts of one market are needed to match another market’s three-year dollar price excursion.

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

Each column is a proportional comparison and is meaningful only against other contracts in the same column.

On the ranked display, a longer run of activity marks indicates a more active contract, while a single mark or none indicates little activity.

Equal-dollar contract counts from the ranked futures liquidity table

Read the bars as a pre-trade size veto, not a return forecast. Gasoline, Brent, and the GSCI index need one contract for the same three-year dollar range that takes 193 Eurodollar lots or 335 fed-funds lots. These figures are the Contracts to Trade for Equal Dollar Profit column in the November 2015 Stocks & Commodities futures liquidity table, printed in liquidity-rank order.
Read the bars as a pre-trade size veto, not a return forecast. Gasoline, Brent, and the GSCI index need one contract for the same three-year dollar range that takes 193 Eurodollar lots or 335 fed-funds lots. These figures are the Contracts to Trade for Equal Dollar Profit column in the November 2015 Stocks & Commodities futures liquidity table, printed in liquidity-rank order.Listed commodity and financial futures · November 2015

Each row is tick dollar value times the prior three-year maximum price excursion, so every count is scaled to the same dollar of potential profit. The original page’s relative-liquidity dots are a visual ranking, not a numeric series, and are omitted.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
31 of 40 in the Volume confirmation track
201758-58 pp.Next on Volume confirmationScreen listed futures for execution liquidity firstA liquidity filter ranks listed futures by how readily size can be put on and taken off, using range, outstanding contracts, and activity rather than the attractiveness of a signal.
All readings on this track · 40 readings
  1. 1988Constructing volume-confirmation overlays on OHLC spreadsheet charts
  2. 1989Commodity advance-decline from delivery months
  3. 1989The most-active list as a three-layer breadth lab
  4. 1989Constructing a yield-curve volume-breadth composite
  5. 1989A bond-futures case study in support, volume, and confirmation
  6. 1989Volume-scaled price boxes and volume cycles
  7. 1990Futures-signed on-balance volume construction
  8. 1990Self-relative volume boxes for news-free breakouts
  9. 1990Broadening swings, demand tests, and volume filters
  10. 1991A same-session pressure test of breadth and volume share
  11. 1991Tick extremes that confirm double tops and bottoms
  12. 1991Constructing auction fuel from volume and open interest
  13. 1994Constructing On-balance volume with smoothing and timeframe confirmation
  14. 1996A volume-gated moving-average trend combination
  15. 1996Constructing four-state range-volume bars
  16. 1997Failed trade review of a descending-triangle breakdown
  17. 1997Construct a head-and-shoulders before the neckline break
  18. 2004Volume confirmation is not optional for a head-and-shoulders reversal
  19. 2007Constructing a three-factor volume-price confirmation filter
  20. 2007Constructing a three-condition moving-average entry with a volume filter
  21. 2008Breakout rules that wait for volume and liquidity
  22. 2011Screen futures liquidity with open interest and volume
  23. 2011Filter executable futures with liquidity and open interest
  24. 2012Rank listed futures by liquidity before a forecast chooses the name
  25. 2012Filter futures liquidity using open interest and volume
  26. 2013Pre-trade futures liquidity as an execution filter
  27. 2014A futures liquidity screen from range, open interest and volume
  28. 2014Evaluating futures contract liquidity before execution
  29. 2014Constructing defended price lines from volume clusters
  30. 2014Filter futures by equal-dollar size, open interest, and volume
  31. 2015Filter futures ideas by ranked contract liquidity
  32. 2017Screen listed futures for execution liquidity first
  33. 2017Filter futures orders by liquidity, open interest, and volume
  34. 2018Using open interest and volume to rank futures liquidity
  35. 2018Score listed futures as an execution menu before the setup
  36. 2019Filtering futures orders with liquidity, open interest and volume
  37. 2019Futures liquidity as an execution filter
  38. 2020A futures liquidity board as a pre-trade execution filter
  39. 2020Sequenced volume and golden-cross breakout rules
  40. 2020Use a listed-futures liquidity filter before execution
By fieldLiquidity and costs119 readingsBy year201585 readings
All 54 readings tagged Volume confirmation
Also on Volume confirmation5 readings
2011Filter executable futures with liquidity and open interest2011Screen futures liquidity with open interest and volume2012Rank listed futures by liquidity before a forecast chooses the name2012Filter futures liquidity using open interest and volume2013Pre-trade futures liquidity as an execution filter