Screen listed futures for executable liquidity first

Filter the roster first

The liquidity filter is a pre-trade screen that keeps only contracts with enough activity, open interest, and comparable size to be entered and exited at an acceptable implementation cost. Open interest analysis uses outstanding contract inventory, together with volume and an equal-dollar size factor, to judge whether a market can absorb a planned order.

Editorial: treat a listed-futures roster as an execution menu. Apply the open-interest and volume-scaled liquidity filter first. Use the equal-dollar contract count and effective percent margin only on markets that can absorb the order over its life cycle.

How relative contract liquidity is built

Relative futures liquidity can be ranked by multiplying contract point value, a three-year maximum price move, open interest, and a volume factor usually set from 1 to 4.

Relative contract liquidity is a descending ease-of-trade rank built from the equal-dollar contract count, total open interest, and a volume scaling factor. It equals that equal-dollar contract count times total open interest times a volume factor defined as the greater of 1 or exp(ln(volume) / ln(5000) - 2).

The volume scaling factor is a multiplier, described as usually between 1 and 4, and alternatively as the greater of 1 or an exponential function of volume relative to 5000, that adjusts thin or extreme activity.

Equal-dollar size and effective percent margin

The equal-dollar contract count is how many contracts of one future must be traded so its three-year maximum dollar excursion matches other listed markets. It equals tick dollar value times the three-year maximum price excursion, so one market's size can be compared with another on a common dollar-move basis.

Effective percent margin is margin dollars divided by the three-year dollar range of the contract, expressed as a percentage, for comparing capital locked per unit of historical range. It equals margin dollars divided by the three-year contract dollar range, then multiplied by 100.

How to read the ranking

Each column in the comparison is a proportional measure that is meaningful only against other markets in the same column.

Contracts at the top of the relative-liquidity ranking are characterized as easier to buy and sell. Contracts at the bottom are characterized as the hardest to transact. Contracts marked with one liquidity dot or none are characterized as lightly transacted and less suitable when ready entry and exit are required.

In the supplied ranking snapshot, the E-mini S&P 500 required 3 equal-dollar contracts and led the relative-liquidity column, while 30-day fed funds required 341 contracts and displayed no liquidity dots.

Share trading liquidity

Share trading liquidity is presented as period volume expressed as a percentage of shares outstanding, that is, the turnover rate of the firm's equity. For shares, that turnover rate is offered as an equity analogue of trading liquidity.