2011issue C1076

Liquidity and open interest as a screen for futures selection

The archive ranked listed futures by how readily the open-interest stock could be traded, using a size-adjusted three-year range and a volume factor. Equal-dollar contract counts and effective percent margin then compared size and margin stretch across markets.

A relative-contract-liquidity rank orders listed futures by how readily the full open-interest stock can be traded, using size-adjusted range, open interest, and a volume factor.
Equal-dollar contract count reports how many contracts of each market match the same dollar profit potential, so every entry in that column represents the same dollar amount.
Effective percent margin expresses margin dollars as a percentage of the three-year dollar range, so margin stretch can be compared across listings.
Each column is a proportional measure and is meaningful only when one contract is compared with other contracts in the same column.

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

An execution filter, not a market pick

Editorial: treat listed-futures selection as a liquidity filter first. Rank markets by how densely they can be turned over, then compare equal-dollar size and margin stretch so a single idea is placed only in a contract that can actually be filled.

The archive ranking orders markets by how readily their full open-interest stock can be traded. The densest activity marks stand at the top, and single or empty marks stand at the bottom. Relative contract liquidity is a cross-market rank of how readily a listed futures book can be traded, built from size-adjusted range, open interest, and a volume tilt.

How relative contract liquidity is built

A relative liquidity rank for listed futures is formed by multiplying contract point value, the largest price move observed over the prior three years, open interest, and a volume factor that is usually between 1 and 4.

Relative contract liquidity is also the equal-dollar contract count multiplied by total open interest and by that volume factor. The volume factor is the greater of 1 or the exponential of the natural log of volume divided by the natural log of 5000, minus 2. It down-weights thin volume and lifts very heavy volume.

Equal-dollar size and effective percent margin

An equal-dollar size column reports how many contracts of each market are required to match the same dollar profit potential. That count is computed as tick dollar value times the three-year price excursion, so every entry in the column represents the same dollar amount. The three-year price excursion is the largest price move observed over the prior three years, and it also scales effective margin.

Effective percent margin is margin dollars divided by the three-year dollar range of the contract, then multiplied by one hundred, so margin use can be compared across markets. It expresses initial margin dollars as a percentage of the contract's three-year dollar price range.

A 2011 ranking snapshot

In the 2011 snapshot, short-term interest-rate futures occupied the top of the relative-liquidity ranking, ahead of equity-index, energy, metal, and agricultural contracts.

For listed shares, period volume as a percentage of shares outstanding is described as a turnover-rate proxy for trading liquidity that can influence price change.

What the screen is for

Editorial: the screen is a pre-trade liquidity filter that keeps only contracts dense enough to enter and exit, instead of treating thin and active books as interchangeable. Open interest is the stock of outstanding futures contracts used as a scale for how much size the market can absorb. Equal-dollar contract count is how many contracts of one market are needed so each listing is compared on the same dollar profit potential.

Effective percent margin in the March 2019 futures liquidity screen

Contracts are listed in the source’s relative-trading-ease order, from easiest to hardest to transact. The bars are the table’s Effective % Margin figures: margin as a share of each contract’s three-year dollar range. Natural gas (34.3%) and the Mexican peso (32.3%) tie up the most range-adjusted margin; Russell 2000 E-mini (4.5%), Eurodollar (3.6%) and 30-day fed funds (2%) tie up the least. Numbers are read from the March 2019 Technical Analysis of Stocks & Commodities futures liquidity table, not from the trading-floor photograph.Listed U.S. futures · March 2019 listing · 2019-03-01T00:00:00.000Z to 2019-03-31T00:00:00.000Z

The source ranks contracts by relative contract liquidity (a dot scale built from equal-dollar size, open interest and a volume factor). That score is not printed as a number, so this chart uses the numeric Effective % Margin column from the same table. Effective percent margin is exchange margin divided by the three-year dollar range of the contract, times 100. Values in any column are comparable only with other values in that column.

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

13 of 51 in the Futures contract selection track

201176-76 pp.Next on Futures contract selectionA futures liquidity filter for equal-dollar executionAn equal-dollar lot count multiplies tick dollar value by the largest three-year price excursion so each listed futures market is scaled to a comparable profit unit.

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