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2010issue C1085

Screen futures for tradeable liquidity before sizing

A futures liquidity ranking combines contract point value, a three-year maximum price move, open interest, and a volume-based factor so thin books are dropped before markets are compared on an equal-dollar and effective-margin grid.

  • A liquidity filter drops contracts whose open interest and activity cannot carry speculative size before any position is sized.
  • Equal-dollar contract count and effective percent margin put remaining markets on a shared dollar and margin-stretch scale, so a cheap tick is not read as cheap, executable risk.
  • Relative contract liquidity multiplies equal-dollar contract count by open interest and a volume factor; compare figures only within the same column.
  • A single activity mark, or none, flags a thin book treated as a poor candidate for speculative execution.
Entries in this reading2 entries
Liquidity filter118 readingsCurrent trackOpen interest analysis118 readings

Liquidity as a pre-trade gate

A liquidity filter is a pre-trade screen that keeps only contracts with enough activity, depth, and cost characteristics to be entered and exited at intended size. Open interest analysis uses outstanding contract count, with volume, as a size-and-activity input when judging how easily a futures position can be put on or taken off.

Activity marks on that ranking increase with participation. A single mark or none flags a thin book treated as a poor candidate for speculative execution.

How the ranking is assembled

A futures liquidity ranking can be built by combining contract point value, a three-year maximum price move, open interest, and a volume-based factor. Relative contract liquidity is defined as the equal-dollar contract count times total open interest times a volume factor.

That volume factor is the larger of one and an exponential transform of volume relative to a 5,000-contract reference, minus two.

Equal-dollar size and margin stretch

An equal-dollar column counts how many contracts of one market are needed to match another market's potential dollar excursion. It uses tick dollar value times the three-year maximum price excursion, so figures in that column share the same dollar scale.

Effective percent margin is margin dollars divided by the three-year range of the contract's dollar value, then multiplied by one hundred. It is shown beside raw percent margin to compare how posted capital stretches across contracts.

Column values are proportional and are meant to be read only against other values in the same column, not as standalone scores.

Posted versus effective margin in the October 2010 futures liquidity ranking

Contracts follow the magazine’s liquidity order, from Eurodollar at the liquid end to Mexican peso at the thin end. Effective percent margin is posted margin dollars divided by the three-year dollar range of the contract; posted percent margin is shown beside it. Equity-index names cluster near 22 percent effective while short-rate futures stay in the low single digits and natural gas prints a high posted haircut but a much lower effective figure, so a tiny tick or a tiny posted margin is not automatically cheap, executable risk. All values are taken from the published Trading Liquidity: Futures table.
Contracts follow the magazine’s liquidity order, from Eurodollar at the liquid end to Mexican peso at the thin end. Effective percent margin is posted margin dollars divided by the three-year dollar range of the contract; posted percent margin is shown beside it. Equity-index names cluster near 22 percent effective while short-rate futures stay in the low single digits and natural gas prints a high posted haircut but a much lower effective figure, so a tiny tick or a tiny posted margin is not automatically cheap, executable risk. All values are taken from the published Trading Liquidity: Futures table.Exchange-listed commodity and financial futures · October 2010 ranking; three-year lookback for effective margin · 2007-10-01T00:00:00.000Z to 2010-10-31T00:00:00.000Z

The source also prints a relative-liquidity glyph that overruns the page for the top two contracts; that glyph is not treated as a number here. Effective margin uses the magazine’s three-year maximum price excursion as the denominator.

What the illustrated ranking showed

In the illustrated ranking, short-rate interest-rate futures sit at the most liquid end, while several agricultural, metal, and currency contracts sit at the sparse end with a single activity mark.

Share-turnover as an equity stand-in

For equities, share-turnover is period volume as a fraction of shares outstanding. It is presented as a stand-in for trading liquidity, on the view that activity can proxy how easily a security's price can be moved.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
6 of 20 in the Open interest analysis track
201177-77 pp.Next on Open interest analysisScreen futures liquidity with open interest and equal dollar sizeA futures liquidity ranking can mark each listed contract so that more marks mean more trading activity and one mark or none means little activity.
All readings on this track · 20 readings
  1. 1988Wave-count consensus and open-interest confirmation
  2. 1990Calibrating volume and open interest at support and resistance
  3. 1997Grading volume and open interest after moving-average crosses
  4. 2003Constructing an expiration settlement map from listed open interest
  5. 2010Futures liquidity filter for equal-dollar size and open interest
  6. 2010Screen futures for tradeable liquidity before sizing
  7. 2011Screen futures liquidity with open interest and equal dollar size
  8. 2011Construct a daily initiator filter from lead-contract price, open interest, and volume
  9. 2012Ranking futures markets by executable liquidity
  10. 2013Equal-dollar open interest as a futures liquidity filter
  11. 2013Filter futures by open interest and relative liquidity
  12. 2015Filter futures contracts by open interest and volume
  13. 2015Screen listed futures for executable liquidity first
  14. 2015Money-flow lookback versus aggregated open interest
  15. 2016Ranking futures by executable liquidity and open interest
  16. 2018Futures liquidity and open interest as an execution filter
  17. 2019Evaluate futures liquidity with open interest and equal-dollar filters
  18. 2019Screen futures contracts by open interest and liquidity
  19. 2020Filter futures orders by liquidity and open interest
  20. 2020Ranking futures liquidity before you place the order
By fieldLiquidity and costs119 readingsBy year201075 readings
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