Ranking futures markets by executable liquidity

A two-gate execution check

As a TradersWeek editorial reading, treat the archive ranking as a two-gate execution check rather than as a market forecast. The first gate puts every futures market on an equal-dollar opportunity scale. The second gate keeps only those markets whose open interest and volume can carry that size.

Liquidity is graded here as a liquidity filter: a pre-trade screen that accepts or rejects a market as executable after depth and implementation cost are accounted for. Relative contract liquidity is a comparative score of how readily a listed futures market can be bought and sold, built from size-adjusted opportunity, open interest, and volume.

Gate one: an equal-dollar opportunity scale

The equal-dollar contract count equals tick dollar value times the largest price excursion observed over the prior three years. Each listed count is scaled to a comparable dollar opportunity, so one future can be matched to another on a common notional scale.

A futures liquidity ranking can be assembled by multiplying contract point value, a three-year maximum price range, open interest, and a volume adjustment. TradersWeek editorial reading: that first product of point value and the three-year range is the opportunity measure the equal-dollar count is meant to hold constant across markets.

Gate two: open interest and the volume factor

The same relative-liquidity score is also defined as the equal-dollar contract count times total open interest times a volume factor. Open interest is the stock of outstanding futures contracts and is used as a capacity input when ranking how much size a market can absorb.

The volume factor is a multiplier that adjusts the liquidity score when traded volume is far from a reference level, with a floor of one. It is the greater of 1 and an exponential transform of the natural log of volume divided by the natural log of 5000, then reduced by 2. The volume adjustment used in that ranking is typically an integer from 1 to 4, applied when volume is unusually low or unusually high.

How to read the ranking

Relative liquidity figures are proportional measures and are intended to be compared only with other contracts in the same column. Contracts at the top of the relative-liquidity ranking are characterized as easier to buy and sell than contracts at the bottom.

Effective percent margin is posted margin dollars divided by the three-year dollar price range of the contract, then converted to a percent. Posted margin is expressed as a share of the contract’s multi-year dollar price range rather than as a share of current contract value. TradersWeek editorial reading: the figure restates posted margin against the same multi-year dollar range used to scale opportunity, not against today’s contract value.

A stock-market analogue

For common stocks, period volume as a percentage of shares outstanding is presented as a turnover-rate proxy for trading liquidity. Share turnover is equity volume over a period divided by shares outstanding, used as a stock-market analogue of trading liquidity.