A relative liquidity rank for choosing an executable futures contract

From listed futures to an executable contract

Futures contract selection is the act of choosing among listed futures by comparing how much dollar risk each contract represents and how readily that risk can be put on or taken off.

The archive workflow then applies a liquidity filter. That screen uses volume, open interest, margin, and related trading-cost inputs over the life of an order to decide whether a futures contract is executable.

Same dollar risk first

Before markets are ranked, each listing is placed on the same dollar-risk footing. The equal-dollar contract count is the number of contracts of one market needed to match another market's dollar exposure after scaling by tick value and a three-year maximum price move.

In the archive construction, an equal-dollar-profit contract count equals tick dollar value times the three-year maximum price excursion, so every listed count shares the same dollar value.

Open interest and the volume factor

Open interest analysis uses the stock of outstanding contracts, together with volume, as a capacity check on whether a chosen size can be absorbed.

Relative contract liquidity equals the equal-dollar contracts-to-trade count times total open interest times a volume factor. The futures liquidity rank is produced by multiplying contract point value by a three-year maximum price move, by open interest, and by a volume factor usually from 1 to 4.

The volume factor is an adjustment, typically from 1 to 4, that raises or lowers the liquidity rank for unusually low or high volume. It is the greater of 1 and the exponential of the natural log of volume divided by the natural log of 5000, minus 2.

How to read the rank

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

Contracts at the top of the relative-liquidity ranking are presented as easiest to buy and sell. Contracts at the bottom are presented as the most difficult.

Activity markers on the rank identify the most actively traded contracts with the largest cluster of markers. Little activity is identified with one marker or none.

Margin use and share turnover

Effective percent margin equals dollar margin divided by the three-year dollar range of the contract, then multiplied by 100, so margin use can be compared across markets.

For listed shares, trading activity is treated as a liquidity proxy equal to period volume as a percentage of shares outstanding.