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2019issue C0858

Ranking futures liquidity before you pick a contract

A futures liquidity rank can be built from size-normalized contract counts, open interest, and a small activity factor so listings that are hard to trade fall down the list before an idea is sized.

  • Relative contract liquidity is a descending rank that combines how many contracts are needed for a comparable dollar move with open interest and activity.
  • Contracts to trade for equal dollar profit multiplies contract value by the largest three-year price change so each listing can be read as a comparable dollar exposure.
  • Open interest weight and a volume activity factor scale the rank so thin listings are down-weighted and notional size alone does not dominate.
  • Each column is a proportional comparison and is meaningful only against other listings in the same column.
Entries in this reading3 entries
Liquidity filter46 readingsOpen interest analysis46 readingsCurrent trackFutures contract selection51 readings

Liquidity as a first filter

Relative contract liquidity is a descending rank of listed futures that combines how many contracts are needed for a comparable dollar move with how much open interest and activity those contracts have.

Relative contract liquidity is displayed as a descending visual score so listings with more activity sit above listings with little or no activity.

Building a comparable rank

A futures liquidity ranking can be built by combining contract point value, a multi-year maximum price move, open interest, and a small activity factor that down-weights thin listings.

Open interest weight is the outstanding-contract count used as a scale factor so a ranking reflects how much of the market can actually be traded.

The volume activity factor is a multiplier, usually in a small integer range, that down-weights listings with thin trading so the rank is not driven by notional size alone.

Contracts to trade for equal dollar profit

A taller bar means more contracts are needed to match the same three-year dollar profit as the rest of the list, so Eurodollar (19) and corn (13) are large in size even when they sit mid-pack on liquidity. Counts are taken from the Trading Liquidity: Futures table in the January 2018 issue of Technical Analysis of Stocks & Commodities, with rows left in that table’s relative-liquidity order.
A taller bar means more contracts are needed to match the same three-year dollar profit as the rest of the list, so Eurodollar (19) and corn (13) are large in size even when they sit mid-pack on liquidity. Counts are taken from the Trading Liquidity: Futures table in the January 2018 issue of Technical Analysis of Stocks & Commodities, with rows left in that table’s relative-liquidity order.Listed U.S. futures · January 2018 listing

The source defines the count as tick dollar value times the three-year maximum price excursion, so every row is scaled to the same dollar-profit potential. Relative liquidity is printed only as a truncated dot bar and is not recovered as a number.

Equal dollar profit and effective percent margin

Contracts to trade for equal dollar profit is a size normalization that asks how many contracts of one listing are needed to match another listing's potential dollar move over a multi-year price range.

The column is built by multiplying contract value by the largest price change observed over the prior three years. After that size normalization, every listing in the equal-dollar-profit column is intended to represent a comparable dollar exposure.

Effective percent margin is margin dollars divided by the three-year dollar range of the contract, then scaled by one hundred, so margin use can be compared across markets.

The relative-liquidity score

The relative-liquidity score multiplies the equal-dollar contract count by total open interest and a volume factor that is the greater of one or an exponential of log volume over log 5000 minus two.

A 2019 ranking snapshot

In the accompanying 2019 snapshot, equity-index and Treasury listings occupy the top of the liquidity rank while several metals, softs, and currency listings sit near the bottom.

The same idea in stocks

The same liquidity idea applied to stocks treats turnover, volume as a share of shares outstanding, as a proxy for how easily a position can be traded.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
46 of 51 in the Futures contract selection track
201958-58 pp.Next on Futures contract selectionScreening futures by equal-dollar liquidityPlace every futures product on the same three-year dollar range by counting how many lots match that common 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 year20198 readings
All 51 readings tagged Futures contract selection
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