Filtering futures orders with liquidity, open interest and volume

A pre-trade execution gate

A futures liquidity rank is useful only if it answers a fill question: can this order be placed and worked over its life. Editorial: TradersWeek reads the historical screen as a gate, not as a ranking of attractiveness. First drop names that fail open-interest and volume tests. Then compare only the survivors after each one is scaled to an equal-dollar move.

The liquidity filter keeps contracts whose book, spread, volume and cost profile support an executable order. Names that fail those checks are not ranked against more active markets.

How the archive formed the rank

A futures liquidity rank was formed by multiplying contract point value, a three-year maximum price excursion, open interest and a volume factor typically between 1 and 4.

Relative contract liquidity ranked markets by the product of the equal-dollar contract count, total open interest and a volume factor. It is a descending rank of how readily a market’s full contract stock can be bought or sold.

Contracts showing one or no liquidity dots were described as having little activity.

Scale markets to an equal-dollar move

The equal-dollar contract count scaled every listed futures market by contract value times the largest three-year price change so figures in that column shared the same dollar footing.

That count is how many contracts of one market must be traded so its three-year dollar excursion matches that of another listed market. Editorial: after the open-interest and volume tests, this is the comparison that puts survivors on the same dollar footing. A margin percentage does not do that work.

Open interest and volume as size checks

Open-interest analysis uses outstanding contract inventory as a size input so a ranking reflects how much of the market is already open, not just recent prints.

Volume confirmation uses traded volume, including a volume adjustment, to check that apparent size is actually turning over rather than sitting idle.

That volume factor was the greater of 1 and the exponential of the natural log of volume divided by the natural log of 5000, minus 2. The factor typically sat between 1 and 4.

Effective percent margin is not fill quality

Effective percent margin was computed as dollar margin divided by the three-year dollar range of the contract, then multiplied by 100.

Editorial: a lower effective percent margin describes how large the posted margin is relative to the contract’s three-year dollar range. It does not say whether the order will fill cleanly. Use it after the liquidity filter, not instead of it.

What the tabulated snapshot showed

In the tabulated snapshot, the March 2019 S&P 500 E-Mini showed a 4.7 percent margin, a 15.2 effective percent margin and two contracts for an equal-dollar profit, and occupied the top relative-liquidity row.

The listed March 2019 bitcoin futures row showed a 44.1 percent margin and no relative-liquidity dots. Under the archive rule, one or no liquidity dots meant little activity.

Equity liquidity was framed as turnover: period volume expressed as a percentage of shares outstanding. Share-turnover is the equity proxy for trading liquidity, not a substitute for the futures rank.