Liquidity-first futures contract selection

An execution screen, not a market view

Editorial note: TradersWeek treats listed-futures venue choice as an execution screen rather than a directional opinion. The archive workflow discards thin books with a liquidity filter and an open-interest check, then compares the survivors so the contract that remains is one that can be implemented.

A liquidity filter is a pre-trade screen that uses volume, open interest, spreads, and implementation cost over the life of an order to decide whether a listed contract is executable. Open interest analysis is a size-capacity check that weights outstanding open interest with volume so a planned futures ticket is matched to a book that can absorb it.

Futures contract selection is the later step: choosing among listed futures after those screens, then placing the surviving contract into an equal-dollar, margin, and multi-market context.

How the archive ranks liquidity

A listed-futures liquidity rank can be formed by multiplying contract point value, a three-year maximum conceivable price move, open interest, and a volume factor usually between 1 and 4.

Relative contract liquidity is a cross-market ranking of how readily an entire futures complex 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 exp(ln volume / ln 5000) minus 2.

The volume factor is a multiplier, usually between 1 and 4, that down-weights very thin or extremely heavy volume when ranking futures liquidity.

Marks for relative activity

Relative activity can be shown as a descending mark count. The densest marks identify the most active contracts. One mark or none identifies thin activity.

Equal-dollar contract counts

An equal-dollar-profit weighting scales each futures market by contract value times the largest price change observed over three years, so every count in that column represents the same dollar opportunity.

The equal-dollar contract count equals tick dollar value times the three-year maximum price excursion. It is the number of contracts of one futures market needed to match another market's three-year dollar price opportunity.

Effective percent margin

Effective percent margin equals dollar margin divided by the three-year dollar price range of the contract, then multiplied by 100. It is used to compare capital locked per unit of historical range.

Editorial: apply this comparison only after the liquidity filter and the open-interest check have already set the executable list.

How to read the columns

Liquidity and equal-dollar columns are proportional comparisons and are meaningful only against other contracts in the same column.

For listed shares, period volume as a percentage of shares outstanding can be read as a share turnover proxy for trading liquidity.