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2019issue C0758

Futures liquidity as an execution filter

A futures liquidity ranking combined contract point value, a three-year maximum price excursion, open interest, and a volume adjustment. Markets with more activity marks were treated as easier to trade, and each figure was read against other markets in the same column.

  • A liquidity filter ranks futures by how readily size can be bought or sold, using activity, cost, and book-depth inputs rather than a directional forecast.
  • Open-interest analysis weights the score by outstanding contracts, and volume confirmation adjusts it with recent turnover so quieter markets rank as harder to enter and exit.
  • An equal-dollar column uses contracts to trade so each market is scaled to a comparable multi-year dollar move.
  • Figures in a liquidity column are comparative only and are meaningful when read against other markets in the same column.
Entries in this reading3 entries
Current trackVolume confirmation54 readingsLiquidity filter118 readingsOpen interest analysis118 readings

What the ranking combined

A futures liquidity ranking can be formed by combining contract point value, a three-year maximum price excursion, open interest, and a volume adjustment. That combination is a liquidity filter: a pre-trade screen that ranks markets by how readily size can be bought or sold, using activity, cost, and book-depth inputs rather than a directional forecast.

Relative activity marks are used so markets with the most marks are treated as easier to trade and markets with one mark or none as thinner.

Activity, open interest, and volume

Open-interest analysis weights a liquidity score by outstanding contracts so deeper books rank above thin ones when judging whether an order is executable. Volume confirmation then adjusts that score with recent turnover so high-activity markets are treated as easier to enter and exit than quiet ones.

Relative contract liquidity can be expressed as contracts to trade times total open interest times a volume factor. That volume factor is the greater of 1 and an exponential transform of volume relative to a 5,000-contract baseline.

Equal-dollar size

An equal-dollar column scales each market by how many contracts would be needed to match another market's three-year dollar excursion. Contracts to trade is that count: the number of contracts needed so each market is scaled to a comparable multi-year dollar move.

Margin intensity

Effective percent margin is obtained by dividing posted dollar margin by the contract's three-year dollar range and multiplying by 100. It is posted margin expressed as a share of a multi-year contract dollar range, used to compare capital intensity across markets.

Posted and effective margin by ranked futures contract

The Russell 2000 E-Mini is the outlier at 93.3 percent effective margin, so the same three-year dollar range consumes far more posted capital than in rates or meal. Most other listed names sit between about 4 and 26 percent effective. The paired shorter bars are ordinary percent margin. Both series are the exact columns from the July 2019 Trading Liquidity: Futures table, kept in the source’s liquidity order.
The Russell 2000 E-Mini is the outlier at 93.3 percent effective margin, so the same three-year dollar range consumes far more posted capital than in rates or meal. Most other listed names sit between about 4 and 26 percent effective. The paired shorter bars are ordinary percent margin. Both series are the exact columns from the July 2019 Trading Liquidity: Futures table, kept in the source’s liquidity order.Listed commodity and financial futures · July 2019 table · 2019-06-01T00:00:00.000Z to 2019-12-31T00:00:00.000Z

Effective percent margin is the source’s ratio of dollar margin to the three-year dollar price range of the contract, times 100. Relative-liquidity dots are a rank display, not a number, and are omitted. Contract months are the 2019 expiries printed in that table.

How the column is read

Figures in a liquidity column are comparative only and are meaningful when read against other markets in the same column. Relative contract liquidity is a same-column ranking of how easily a futures market's contracts can be traded versus other listed markets.

For listed shares, period volume as a percentage of shares outstanding is presented as share turnover, a turnover-rate proxy for trading liquidity.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
37 of 40 in the Volume confirmation track
202058-58 pp.Next on Volume confirmationA futures liquidity board as a pre-trade execution filterAssemble relative contract liquidity from contract scale, a three-year price range, open interest, and a volume factor before a futures listing is chosen.
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 year201975 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