Ranking futures liquidity for executable orders

Read the ranking as an execution screen

A published futures ranking treats liquidity as a selection filter by placing contracts in descending order of how easily their full open interest can be traded.

Editorial note: TradersWeek reads that table as an execution screen. First ask whether the contract can be entered and exited at a workable cost. Use a liquidity-filter to drop thin names, open-interest-analysis to judge how much size is available, and commission-analysis to account for implementation cost, before any later comparison of margin or contract count.

How relative-contract-liquidity is built

Relative-contract-liquidity is a comparative ranking of how easily a futures market can be traded. It is shown as a descending scale of activity marks rather than a standalone score.

The construction uses the contracts needed for an equal-dollar move, total open interest, and a volume factor that is the greater of 1 or a log-volume adjustment around a 5,000-contract reference.

Open-interest-weighting uses outstanding contracts together with that volume adjustment so a liquidity rank reflects how much size is actually available rather than headline activity alone.

Secondary columns after the filter

Contracts-to-trade-for-equal-dollar-profit multiplies tick dollar value by a three-year maximum price excursion so markets are compared on a common dollar-potential basis. It is a size-normalization that asks how many contracts of one market are needed to match another market's potential dollar move over a shared lookback.

Effective-percent-margin is margin dollars divided by the three-year dollar range of the contract and then multiplied by 100, so posted capital can be compared across markets.

Editorial note: these two measures are secondary filters only. They help compare size and posted capital after a name has already passed the liquidity-filter.

How to read the marks

Markets with one mark or none are described as lightly traded and less suitable for speculative execution than markets with the densest activity marks. A liquidity-filter drops thin or one-mark markets before a strategy is sized, because execution cost and fill quality dominate later results.

Column values are meaningful only as comparisons within the same column, because each measure is proportional rather than an absolute forecast of profit.

On the August 2012 ranking, short-rate contracts such as Eurodollar and three-month Euribor sit at the top of the liquidity scale, while several agricultural and currency contracts sit near the bottom.

A parallel equity proxy

Equity-share turnover, defined as period volume as a percentage of shares outstanding, is offered as a parallel liquidity proxy even though the ranking itself is a futures table.