2015issue C0856
A liquidity filter to choose executable futures
The archive ranks listed futures by how readily open interest can be traded once each market is scaled to the same dollar excursion. Editorial: read that ranking as a liquidity-filter that removes hard-to-execute contracts before any setup is evaluated.
- A liquidity-filter keeps or drops a listed futures contract by how readily an order of comparable dollar size can be executed, not by direction.
- Equal-dollar-contract-count scales each listed market so the compared ticket represents the same cash excursion.
- Relative-contract-liquidity orders contracts from easiest to hardest to trade by combining that ticket size with open interest and a volume-adjustment.
- Effective-percent-margin compares cash margin with the three-year dollar range so implementation cost can be read across markets.
A screen, not a signal
The archive forms a listed-futures liquidity ranking by multiplying contract point value, a three-year extreme price move, open interest, and a volume factor usually set between 1 and 4.
The ranking places contracts in descending order of how readily their open interest can be traded. Higher ranks are described as easier to buy and sell. Lower ranks are described as more difficult.
Each column is a proportional measure and is meaningful only when compared with other contracts in the same column.
Equal-dollar tickets
An equal-dollar column states how many contracts of one listed futures market must be traded to match another market's dollar excursion. That count uses tick dollar value times the three-year maximum price move.
On that equal-dollar basis every listed futures contract is scaled so the compared column entries represent the same dollar value. This is the equal-dollar-contract-count.
Activity score and margin outlay
Relative-contract-liquidity is the equal-dollar-contract-count times total open interest times a volume-adjustment. The volume-adjustment is the greater of 1 or a volume-based factor, is usually set between 1 and 4, and lifts or damps the score when traded volume is far from a fixed baseline, so both neglected and extremely active markets are not scored on open interest alone.
Effective-percent-margin is cash margin divided by the three-year dollar price range of the contract and then scaled to a percentage, so margin outlay can be compared across markets.
A share-market proxy
For listed shares, period volume expressed as a percentage of shares outstanding is presented as share-turnover, a turnover-rate proxy for trading liquidity.
Equal-dollar contracts to trade across listed futures
The source equalizes markets by tick-dollar value times the prior three-year maximum price excursion. Relative Contract Liquidity (open interest times this count times a volume factor) is a separate dotted ranking in the original table and is not plotted here. Listed margin for 30-day fed funds prints as 0 in that table.
All readings on this track · 10 readings
- 2012Filter listed futures by relative contract liquidity
- 2013Score option liquidity before you commit the order
- 2013Evaluate futures liquidity before committing margin
- 2014A two-gate liquidity filter for listed futures
- 2015A liquidity filter to choose executable futures
- 2016Lookback and direction-test parameters for a liquidity-plus-trend screen
- 2016Same-dollar liquidity-filter for listed futures
- 2016Liquidity filter for executable futures orders
- 2017How to read a futures liquidity filter
- 2020Pre-trade liquidity filter for listed futures