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2014issue C0951

Rank futures liquidity before selecting the contract

Treat futures contract choice as an execution screen first. Rank relative contract liquidity, set aside thin activity, and only then compare equal-dollar profit and effective percent margin among contracts that clear the filter.

  • Use a liquidity filter before comparing futures on margin or equal-dollar profit, so only contracts that can absorb size enter the next screen.
  • Relative contract liquidity multiplies the contracts-to-trade count by total open interest and a volume factor that is usually between 1 and 4.
  • Contracts with one activity marker or none are treated as thinner and less suitable for speculative execution.
  • Values in a liquidity comparison table are proportional and are meaningful only when read against other values in the same column.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

Liquidity first, then contract choice

Editorial view: treat futures contract choice as an execution screen first. Rank markets by how readily size can be transacted, then interpret margin efficiency and equal-dollar profit figures only among contracts that clear a liquidity filter.

The archive workflow ranks relative contract liquidity from contract size, a multi-year price range, outstanding open interest, and a volume adjustment. Markets at the top of that ranking are described as easiest to buy and sell, and those at the bottom as hardest.

How relative contract liquidity is built

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

The same ranking can be stated as relative contract liquidity: the contracts-to-trade figure times total open interest times a volume factor. The contracts-to-trade count for a market is the product of tick dollar value and the three-year maximum price excursion.

Open interest is the stock of outstanding futures positions. It is used as a size-capacity input when ranking how much activity a market can absorb.

Contracts needed for equal three-year dollar profit

Each bar is the published contract count that equalizes every listed future to the same three-year dollar opportunity. Rates and funds sit at 1–6 contracts; several notes, corn, soybean oil and Schatz need more than 20. Traders should treat a high count as more size to carry through the order book, not as a better market. Values are the exact “Contracts to Trade for Equal Dollar Profit” column from the January 2010 futures liquidity table.
Each bar is the published contract count that equalizes every listed future to the same three-year dollar opportunity. Rates and funds sit at 1–6 contracts; several notes, corn, soybean oil and Schatz need more than 20. Traders should treat a high count as more size to carry through the order book, not as a better market. Values are the exact “Contracts to Trade for Equal Dollar Profit” column from the January 2010 futures liquidity table.Commodity and financial futures (January 2010 liquidity ranking) · Three-year historical price range used to equalize dollar opportunity · 2007-01-01T00:00:00.000Z to 2010-01-31T00:00:00.000Z

The source sets every market to the same dollar opportunity by multiplying tick dollar value by the three-year maximum price excursion, then ranks relative liquidity separately with open interest and a volume factor. Columns are comparative only.

How to read the ranking

Activity markers on such a ranking increase with trading activity. Contracts shown with one marker or none are treated as thinner and less suitable for speculative execution.

Column values in a liquidity comparison table are proportional measures. They are meaningful only when read against other values in the same column.

Equal-dollar profit and effective percent margin

An equal-dollar-profit column puts listed futures on one scale by multiplying contract value by the largest price change observed over the prior three years, so every figure in that column represents comparable dollar potential.

That rescaling is the contracts to trade for equal dollar profit. It states how many contracts of one futures market are needed to match another market's three-year dollar range, so listed values share a common dollar potential.

Effective percent margin is obtained by dividing dollar margin by the three-year range of contract dollar value and multiplying the result by one hundred. Posted margin dollars are thereby expressed as a percentage of the contract's three-year dollar price range and can be used to compare capital efficiency across markets.

Editorial view: after the liquidity filter has set thin contracts aside, margin and equal-dollar figures are read only among the remaining names as executable comparisons.

For stocks, trading activity can serve as a liquidity proxy when period volume is expressed as a percentage of shares outstanding, which is a share-turnover rate.

Editorial view: share turnover is a related activity check for equities, not a replacement for the futures liquidity ranking.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
23 of 51 in the Futures contract selection track
201456-56 pp.Next on Futures contract selectionFilter futures by equal-dollar liquidity and open interestAn equal-dollar column multiplies contract value by the largest three-year price change so every listed market is scaled to the same dollar opportunity.
All readings on this track · 51 readings
  1. 2002Single-stock futures and the sleeve that belongs on the ticket
  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 year20148 readings
All 51 readings tagged Futures contract selection
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