A two-stage liquidity filter for futures contract selection

Size the book before ranking activity

Editorial: treat the archive workflow as a two-stage execution habit. First convert each listing into a contract count that matches the same three-year dollar range. Then use open interest and a volume adjustment to see whether that sized book can actually be worked.

The first stage is the equal-dollar contract count. It equals tick dollar value times the three-year maximum price excursion, so every market in that column is scaled to the same dollar value. That count is how many contracts of one listing are needed to match another listing's potential dollar range.

The second stage is open-interest analysis. Outstanding contract count, together with a volume factor, is the depth input that turns the equal-dollar size into a measure of how easily the full book can be traded.

Relative contract liquidity

Relative contract liquidity is the equal-dollar contract count times total open interest times a volume factor. A listed-futures liquidity rank can be shown as a descending activity mark, with the densest row indicating the most activity and a single mark or none indicating little activity.

That rank is produced by multiplying contract point value, a three-year maximum conceivable price move, open interest, and a low-or-high volume factor usually set between 1 and 4. In the supplied construction 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.

In the 2015 ranking the E-mini S&P 500 used 5 contracts on the equal-dollar scale and led the activity marks, while the 30-day fed-funds listing used 865 contracts and showed no activity marks.

Margin efficiency is a different comparison

Effective percent margin is dollar margin divided by the three-year price range of contract dollar value, then multiplied by 100, so posted margin can be compared with the same historical range used in the size column.

Each column is a proportional measure and is meaningful only when compared with other entries in the same column.

Share turnover as a stock-market proxy

For listed shares, period volume as a percentage of shares outstanding can be treated as a turnover-rate proxy for trading activity and, by extension, trading liquidity.

Choosing among listed futures

Futures contract selection in this workflow waits until markets have been placed on an equal-dollar footing and then compared on relative liquidity and margin efficiency versus the same three-year range.

The liquidity filter is the screen that ranks listed futures by how readily a dollar-comparable size can be bought or sold, combining price range, activity, and a volume adjustment so low-activity contracts can be set aside before an order is placed.