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2016issue C0555

Filter listed futures by relative liquidity and open interest

A liquidity filter keeps only listed futures whose open interest and volume can absorb the intended size. That screen then becomes an equal-dollar contract count and an effective percent margin read, so the selected market is one that can be entered and exited.

  • A liquidity filter keeps a listed future only when its activity, volume, and open interest can support the intended order without inflating implementation cost.
  • Open interest analysis reads outstanding contract inventory as a capacity input that scales how much size a market can reasonably absorb.
  • An equal-dollar contract count and effective percent margin turn the screen into a comparable choice, so futures contract selection favors the market that can be entered and exited.
  • Relative contract liquidity ranks names by required contract count, open interest, and a volume factor. Markets with the most activity marks are treated as easiest to buy and sell.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

What a liquidity filter keeps

A liquidity filter is a pre-trade screen that keeps a listed future only when its activity, volume, and open interest can support the intended order without inflating implementation cost. Open interest analysis reads outstanding contract inventory as a capacity input that scales how much size a market can reasonably absorb.

Scale contracts to one dollar range

An equal-dollar contract count multiplies tick dollar value by the three-year maximum price excursion so each listed future is scaled to the same dollar range. That count is how many contracts of one future are needed to match another future's three-year dollar price range.

Effective percent margin is the dollar margin divided by the three-year dollar range of the contract, then multiplied by one hundred. It expresses margin dollars as a percentage of that three-year dollar range. Futures contract selection then chooses which listed market will carry a planned exposure after comparing executable size, equal-dollar contract counts, and margin consumed per unit of three-year dollar range.

How relative contract liquidity is built

Relative contract liquidity is a cross-market rank of how readily a future can be bought and sold, built from required contract count, open interest, and a volume adjustment. Relative futures liquidity can be ranked by multiplying contract point value, a three-year maximum price motion, open interest, and a low-activity factor that usually runs from 1 to 4. Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor.

The volume factor is a multiplier, typically from one to four, that reduces the rank of thinly traded contracts. It is the greater of 1 and the exponential of the natural log of volume divided by the natural log of 5000, minus 2.

How to read the ranking columns

Figures in each ranking column are proportional and are meaningful only when compared with other figures in the same column. Markets with the most activity marks are treated as easiest to buy and sell. Markets with one mark or none are treated as least executable.

The 2016 ranking snapshot

In the 2016 ranking snapshot, the E-mini S&P 500 occupies the top liquidity slot and the two-year Treasury note occupies the bottom slot with no activity marks.

Equity trading liquidity is framed as period volume expressed as a percentage of shares outstanding, which functions as a share-turnover rate.

Equal-dollar contract counts, May 2016 liquidity ranking

Each bar is how many contracts of that future were needed to match the same three-year dollar-profit range. Energy names sit at one contract, while Eurodollar, the two-year note and canola need far more size. Figures are the May 2016 Trading Liquidity table, kept in the published relative-liquidity order.
Each bar is how many contracts of that future were needed to match the same three-year dollar-profit range. Energy names sit at one contract, while Eurodollar, the two-year note and canola need far more size. Figures are the May 2016 Trading Liquidity table, kept in the published relative-liquidity order.May 2016 · 2016-05-01T00:00:00.000Z to 2016-05-31T00:00:00.000Z

Contract count equals tick dollar value times the three-year maximum price excursion, so every name is scaled to the same dollar range. Row order is the source liquidity ranking, not a sort of this column.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
31 of 51 in the Futures contract selection track
201756-56 pp.Next on Futures contract selectionEvaluating futures liquidity for executable contract selectionRelative contract liquidity ranks listed futures only against other markets on the same board.
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 year20165 readings
All 51 readings tagged Futures contract selection
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