Skip to main content
Track Volume confirmation
30 / 40
Search the archiveLibrary
Library

2014issue C0558

Filter futures by equal-dollar size, open interest, and volume

A 2014 futures ranking restated each contract as an equal-dollar-contract-count, then multiplied that size by open interest and a volume factor to form relative-contract-liquidity. Effective-percent-margin was a later, range-equalized comparison of capital outlay, not a first screen.

  • Equal-dollar-contract-count restates each market as the number of contracts needed to stand the same three-year-price-excursion in dollars, so every listed count represents the same historical-range unit.
  • Relative-contract-liquidity multiplies that count by total open interest and a volume factor, usually between 1 and 4, so a liquidity-filter can keep only names the outstanding book and tape can absorb.
  • Effective-percent-margin is dollar margin divided by the three-year dollar price range, then multiplied by 100, so margin outlay can be compared after range is equalized.
  • Contracts with one activity dot or none were classified as having little activity and as harder to use for speculative execution. Each table column is meaningful only against other entries in the same column.
Entries in this reading3 entries
Current trackVolume confirmation54 readingsLiquidity filter118 readingsOpen interest analysis118 readings

Start with an executable book

The 2014 ranking described here is a historical workflow for comparing listed futures on fill capacity. It restates each name in one dollar-range unit and then asks whether outstanding contracts and trading activity can absorb that unit.

Editorial interpretation: teach futures selection as an execution problem first. Equalize three-year dollar exposure across contracts, keep only names whose open interest and volume can absorb that size, and only after that compare how much margin that executable book consumes.

A liquidity-filter is the pre-trade screen for that order. It uses spread, volume, open interest, and trading-cost inputs over the life of an order to keep only contracts that can be filled and to account for implementation cost.

Restate contracts as equal-dollar size

The equal-dollar-contract-count equals tick dollar value times the three-year-price-excursion. Every listed count then represents the same dollar value of historical range, and the count is the number of contracts of one market needed to stand the same three-year dollar price range as another market.

The three-year-price-excursion is the largest price move observed over the prior three years. It is the conversion that turns a raw contract into a comparable dollar-range unit.

Filter by open interest and volume

Open-interest-analysis scales a market by outstanding contracts so executability is judged by how easily the full book can be traded, not by headline activity alone.

Volume-confirmation multiplies a liquidity rank by a volume factor so thin or unusually heavy activity is not treated as equally executable. A futures liquidity rank can be formed by multiplying contract point value, a three-year maximum price move, open interest, and a volume factor usually between 1 and 4.

Relative-contract-liquidity is the cross-market rank of how easily a comparable dollar exposure can be bought or sold. It 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.

Posted versus effective percent margin on listed futures

Posted percent margin can look cheap on rate and index names while effective percent margin, which divides the same dollar margin by the three-year range of contract value, shows how much of that range the collateral actually consumes. Two-year notes and eurodollars sit near zero on the raw rate and in double digits once the range is in the denominator; Mexican peso, cocoa, wheat, and silver are the most expensive on the effective measure. Figures are the percent-margin and effective-percent-margin columns from the October 2019 Technical Analysis of Stocks & Commodities futures liquidity table, in that table's relative-liquidity order.
Posted percent margin can look cheap on rate and index names while effective percent margin, which divides the same dollar margin by the three-year range of contract value, shows how much of that range the collateral actually consumes. Two-year notes and eurodollars sit near zero on the raw rate and in double digits once the range is in the denominator; Mexican peso, cocoa, wheat, and silver are the most expensive on the effective measure. Figures are the percent-margin and effective-percent-margin columns from the October 2019 Technical Analysis of Stocks & Commodities futures liquidity table, in that table's relative-liquidity order.Listed commodity and financial futures · October 2019

Effective percent margin is defined in the source as margin dollars divided by the three-year range of contract dollar value, then multiplied by 100. Contracts are the front listed months shown in the October 2019 table; relative-liquidity dots are a rank, not a numeric series, so they are not plotted.

Compare margin only after the filter

Effective-percent-margin equals dollar margin divided by the three-year dollar price range of the contract, then multiplied by 100. The figure compares margin outlay after range is equalized.

In the 2014 ranking, the E-mini S&P 500 showed a 4.2 percent margin, a 9.9 effective percent margin, and five contracts for equal dollar profit, while Eurodollar showed a 0.1 percent margin, a 53.5 effective percent margin, and 309 contracts.

Contracts marked with one activity dot or none are classified as having little activity and as harder to use for speculative execution.

Read columns as proportions

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

For stocks, share-turnover is period volume expressed as a percentage of shares outstanding and is treated as a turnover-rate proxy for trading liquidity.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
30 of 40 in the Volume confirmation track
201556-56 pp.Next on Volume confirmationFilter futures ideas by ranked contract liquidityA liquidity filter is a ranked pre-trade screen that keeps only futures contracts whose activity, size, and cost profile can absorb an intended order.
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 year201489 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