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2011issue C0177

Liquidity filter for futures contract selection

Listed futures can be ranked by a liquidity score that multiplies contract point value, a three-year extreme price move, open interest, and a volume factor. Contracts are then ordered from easiest to hardest to trade before equal-dollar scale and margin intensity are compared.

  • A liquidity filter ranks listed futures by combining dollar sensitivity, a multi-year price excursion, activity, and a volume adjustment so thin names can be excluded before an order is placed.
  • Open interest is a size-capacity input in the relative-liquidity score, so a market with little outstanding interest is treated as harder to enter and exit over the life of an order.
  • Equal-dollar contract counts put every name on one dollar scale, and effective percent margin compares how much capital a name consumes relative to its historical swing.
  • Each ranking column is a proportional measure and is meaningful only when compared with other contracts in the same column.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

How listed futures are ranked for execution

A liquidity filter is a pre-trade screen that ranks listed futures by how readily size can be executed. It combines a contract's dollar sensitivity, a multi-year price excursion, activity, and a volume adjustment so thin names are excluded before an order is placed.

A listed-futures liquidity score can be formed by multiplying contract point value, a three-year extreme price move, open interest, and a volume factor.

Relative liquidity and open interest

Relative contract liquidity is a descending ranking formed from the equal-dollar contract count times total open interest times a volume factor. Names at the top are scored as easier to buy and sell than names at the bottom, and contracts are ordered from easiest to hardest to trade on that score.

Open interest analysis uses outstanding contract interest as a size-capacity input in that score. A market with little open interest is treated as harder to enter and exit over the life of an order.

The volume factor is an activity adjustment, typically between 1 and 4, taken as the greater of 1 and the exponential of the natural log of volume divided by the natural log of 5000, minus 2, so unusually low or high volume is not treated as equivalent.

A market with the densest liquidity marks is treated as highly active. A market with one mark or none is treated as thinly traded and harder to execute.

Equal-dollar scale and margin intensity

Futures contract selection chooses which listed futures name to trade by comparing relative liquidity, equal-dollar contract counts, and margin intensity across markets rather than treating every listing as interchangeable.

The equal-dollar contract count equals tick dollar value times the three-year maximum price excursion, so every entry in that column shares the same dollar scale. That count is the contracts to trade for equal-dollar profit: how many contracts of one futures name are needed to match another name's three-year dollar price range.

Effective percent margin equals posted margin dollars divided by the three-year dollar price range of the contract, then multiplied by one hundred. It is used to compare capital intensity across names and to show how much capital a name consumes relative to its historical swing.

Equal-dollar scale of listed futures contracts

Each bar is how many contracts of that market must be traded to match the same three-year dollar profit potential as the others. Rows keep the source liquidity order, so Eurodollars sit first even though they are not the smallest equal-dollar size; two-year Schatz, at 28 contracts, is the heaviest scale on the list, while one 30-day fed-funds or Commonwealth bond contract matches that same dollar move. Figures are the January 2011 futures liquidity table column for contracts to trade for equal dollar profit.
Each bar is how many contracts of that market must be traded to match the same three-year dollar profit potential as the others. Rows keep the source liquidity order, so Eurodollars sit first even though they are not the smallest equal-dollar size; two-year Schatz, at 28 contracts, is the heaviest scale on the list, while one 30-day fed-funds or Commonwealth bond contract matches that same dollar move. Figures are the January 2011 futures liquidity table column for contracts to trade for equal dollar profit.Listed futures contracts · January 2011

The source defines contracts to trade as tick dollar value times the three-year maximum price excursion, so every bar is an equal-profit scale rather than a liquidity score. Relative liquidity is the separate dot ranking that sets this row order.

A share-market liquidity proxy

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

Educational research material, not investment advice. Historical source context does not establish present-day performance.
9 of 51 in the Futures contract selection track
201177-77 pp.Next on Futures contract selectionFutures liquidity rank as an execution filterRelative contract liquidity scores how readily a listed futures book can be bought and sold, using a size-normalized price range, open interest, and a volume factor.
All readings on this track · 51 readings
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  2. 2007Ethanol futures liquidity lagged the policy boom
  3. 2010Relative liquidity ranking for futures contract selection
  4. 2010A liquidity filter for executable futures contract selection
  5. 2010Screening futures by liquidity, open interest, and equal-dollar size
  6. 2010Ranking futures liquidity for executable contract choice
  7. 2010Liquidity and open interest screens for futures selection
  8. 2010Ranking futures by open interest and equal-dollar liquidity
  9. 2011Liquidity filter for futures contract selection
  10. 2011Futures liquidity rank as an execution filter
  11. 2011Silver contract-selection by size, hours, and carry
  12. 2011Filtering futures by liquidity, open interest and equal-dollar size
  13. 2011Liquidity and open interest as a screen for futures selection
  14. 2011A futures liquidity filter for equal-dollar execution
  15. 2012Ranking futures liquidity before choosing a contract
  16. 2013Liquidity-first futures contract selection
  17. 2013Equal-dollar liquidity filter for futures contract choice
  18. 2013Futures liquidity filters for executable contract selection
  19. 2013Filter listed futures by liquidity and open interest first
  20. 2013Ranking listed futures by liquidity and equal-dollar size
  21. 2013A pre-trade liquidity filter for futures contract selection
  22. 2014Why commodity futures are trades, not long-horizon holdings
  23. 2014Rank futures liquidity before selecting the contract
  24. 2014Filter futures by equal-dollar liquidity and open interest
  25. 2015Filter futures contracts by liquidity and open interest
  26. 2015A two-stage liquidity filter for futures contract selection
  27. 2015Screen futures contracts by liquidity and open interest
  28. 2015Equal-dollar futures choice as a liquidity filter
  29. 2016Evaluate futures liquidity before contract selection
  30. 2016Ranking futures liquidity before you pick the contract
  31. 2016Filter listed futures by relative liquidity and open interest
  32. 2017Evaluating futures liquidity for executable contract selection
  33. 2017A relative liquidity rank for choosing an executable futures contract
  34. 2017Constructing a futures liquidity filter for contract selection
  35. 2017Filter futures by liquidity, open interest, and equal-dollar size
  36. 2017Rank futures liquidity before contract selection
  37. 2017Build a futures liquidity filter from open interest
  38. 2018Evaluating futures liquidity for executable contract choice
  39. 2018Volume-confirmed pivots versus unregulated spot exposure
  40. 2018Executable futures selection from a 2018 liquidity board
  41. 2018Evaluate futures liquidity before contract selection
  42. 2018Open-interest liquidity filter for futures contract selection
  43. 2018Construct a futures liquidity filter from open interest and range
  44. 2018Ranking futures by liquidity, open interest, and equal-dollar cost
  45. 2019Ranking futures liquidity before contract selection
  46. 2019Ranking futures liquidity before you pick a contract
  47. 2019Screening futures by equal-dollar liquidity
  48. 2020Building an equal-dollar futures liquidity screen
  49. 2020Use liquidity and open interest as a futures execution screen
  50. 2020Compact index futures as diversified contract selection
  51. 2020Filter futures by range-scaled liquidity and open interest
By fieldLiquidity and costs46 readingsBy year20118 readings
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