2020issue C0258

Use liquidity and open interest as a futures execution screen

This article teaches listed futures choice as an execution screen. Books that cannot be entered and exited cleanly are dropped, remaining books are ranked with open interest and a volume adjustment, and survivors are compared on equal-dollar swing and margin versus the same historical range.

A liquidity filter is a keep-or-drop screen. On the rank display, a single mark or no mark is treated as little activity and as less suitable for speculative execution.
Open interest, used with volume, ranks remaining books for executability rather than serving as a directional signal.
Relative contract liquidity multiplies equal-dollar contract count by total open interest and a volume factor that down-weights thin books.
Survivors are compared on the same three-year dollar swing and on effective percent margin, so posted capital is read against that same historical range.

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

An execution screen, not a theme list

The archive assembles a futures liquidity rank from contract point value, the largest price move implied by three years of history, open interest, and a volume adjustment. Listed futures are also placed on an equal-dollar footing and compared by effective percent margin against the same three-year dollar range. On the rank display, a single mark or no mark is treated as little activity and as less suitable for speculative execution.

A keep-or-drop liquidity filter

A liquidity filter is a keep-or-drop screen for whether a listed futures book is executable. It uses activity, spread and cost context, volume, and the life of the order. Books that show little activity on the rank display are treated as less suitable for speculative execution and are dropped before any later comparison.

Open interest as a ranking input

Open interest analysis uses outstanding contract inventory, with volume, as an input to executability ranking rather than as a directional signal. A futures liquidity rank can be assembled by multiplying contract point value by the largest price move implied by three years of history, then by open interest, then by a volume adjustment typically between 1 and 4.

Relative contract liquidity

Relative contract liquidity is a cross-market rank of how easily a commodity's full set of contracts can be traded. It is built from equal-dollar contract count, open interest, and a volume factor.

In the archive construction, relative contract liquidity equals the equal-dollar contract count times total open interest times a volume factor defined as the greater of 1 or the exponential of the natural log of volume divided by the natural log of 5000, minus 2. The volume factor is a multiplier equal to the larger of one and an exponential transform of volume relative to a 5000-contract baseline, so thin books are down-weighted.

Equal-dollar contract count

Listed futures are placed on an equal-dollar footing by multiplying contract value by the largest price change observed over the prior three years, then reading how many contracts of each market match that same potential dollar swing. The equal-dollar contract count equals tick dollar value times the three-year maximum price excursion. It is how many contracts of one futures market are required to match another market's three-year dollar swing.

Effective percent margin

Effective percent margin is dollar margin divided by the three-year range of the contract's dollar value, then multiplied by 100, so posted capital can be compared with the same historical swing used to size the book. It is posted margin expressed as a percentage of the three-year dollar range of the contract, used to compare capital locked per unit of historical range.

Futures contract selection is choosing which listed market and expiry to trade after placing it in a comparable-dollar and margin-versus-range context across the board.

The illustrated early-2020 board

In the illustrated early-2020 board, the S&P 500 E-Mini (March 2020) sat at the top of relative liquidity with a 4.3 percent margin and 3 contracts for equal-dollar profit, while Eurodollar required 46 contracts on the same equal-dollar scale.

Effective versus posted margin on the February 2020 futures board

Each bar is a listed futures name from the February 2020 Stocks & Commodities liquidity board, kept in the magazine’s published liquidity order. Effective percent margin (margin dollars divided by the three-year dollar range) sits well above posted percent margin on most books, so the haircut covers only a slice of the historical swing; soybean meal is the cheap extreme at 1.9 percent effective, while the Mexican peso, silver and sterling sit at the other end. Figures come from the printed table in the source unit.US listed commodity and financial futures · February 2020 magazine board · 2020-01-01T00:00:00.000Z to 2020-03-31T00:00:00.000Z

The source defines effective percent margin as margin value divided by the three-year price range of contract dollar value, times 100. Row order is the magazine’s relative-liquidity ranking (equal-dollar contract count times open interest times a volume factor) and is not replotted here.

Equity trading activity as a liquidity proxy can be stated as period volume divided by shares outstanding, that is, the turnover of shares outstanding. Share turnover is treated as a liquidity proxy analogous to futures activity.

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

49 of 51 in the Futures contract selection track

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