Ranking futures liquidity before you place the order

A futures liquidity ranking can be built by combining contract point value, a multi-year maximum price move, open interest, and a volume-factor that typically ranges from 1 to 4.

How the relative-liquidity score is built

The relative-liquidity score is the equal-dollar contract count times total open interest times a volume-factor equal to the greater of 1 or exp(ln(volume)/ln(5000) - 2). Open-interest is the outstanding futures positions used as a stock of liquidity when ranking how much size the market can absorb. The volume-factor is a multiplier, often between one and four, that down-weights markets with low recent volume so a large open-interest figure is not mistaken for an executable book. Relative-contract-liquidity is the resulting ranking of how easily a futures market can be traded, so thinner books sit lower.

Compare markets on equal dollars

Equal-dollar comparison requires converting each market into a contract count: tick dollar value multiplied by the three-year maximum price excursion. Contracts-to-trade-for-equal-dollar-profit is that contract count, the number needed in one market to match another market's three-year dollar price range, so comparisons are not biased by tick size. Effective-percent-margin is margin dollars divided by the three-year dollar range of the contract, then multiplied by one hundred, so capital use can be compared across markets.

Read the scale, not a standalone number

Relative liquidity can be shown as a descending visual scale so markets with the densest marks are treated as more executable than markets with one mark or none. Markets at the top of a relative-liquidity list are framed as easier to buy and sell, while markets at the bottom are framed as the most difficult to trade. Column values in such a ranking are proportional and are only meaningful when compared with other markets in the same column.

Share turnover as a stock-market proxy

Share turnover, period volume as a percent of shares outstanding, can be used as a stock-market proxy for trading liquidity and for how activity may relate to price change.