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2018issue C0458

Using open interest and volume to rank futures liquidity

A relative-liquidity score multiplies an equal-dollar contract count by open interest and a volume factor so listed futures can be ranked by how readily the book can be bought and sold. Posted margin is paired with effective percent margin on the same three-year dollar range.

  • Relative contract liquidity ranks how readily a listed futures book can be bought and sold from an equal-dollar contract count, total open interest, and a volume factor.
  • The contracts-to-trade figure places every listed market on one shared dollar scale by combining tick dollar value with the three-year maximum price excursion.
  • Effective percent margin divides dollar margin by the contract's three-year dollar price range so posted margin can be compared with range-scaled capital use.
  • A relative-liquidity display with one mark or none identifies little activity and weaker execution than contracts at the top of the same ranking.
Entries in this reading3 entries
Current trackVolume confirmation54 readingsLiquidity filter118 readingsOpen interest analysis118 readings

Building the relative-liquidity score

A relative futures-liquidity score can be formed by multiplying contract point value, a three-year maximum price move, open interest, and a volume factor usually set between 1 and 4. The result is a descending rank of how readily a listed futures book can be bought and sold.

The contracts-to-trade figure equals tick dollar value times the three-year maximum price excursion, so every listed market is placed on one shared dollar scale. That figure is the equal-dollar contract count: the number of contracts of one market needed to match another market on the same three-year dollar price-excursion scale.

Open interest and the volume factor

Relative contract liquidity equals the contracts-to-trade count times total open interest times a volume factor taken as the greater of 1 and exp((ln volume / ln 5000) - 2). Open interest weight is the stock of outstanding contracts used as a size input so thinly held markets rank lower on the liquidity screen.

The volume factor is a size adjustment that is never below 1 and otherwise grows with the log of volume relative to a 5,000-contract baseline.

Reading the rank

A relative-liquidity display with one mark or none identifies contracts with little activity and therefore weaker execution than contracts at the top of the same ranking.

In the April 2018 snapshot, the March 2018 S&P 500 E-mini listed a 4.6 percent margin, a 13.4 effective percent margin, and a contracts-to-trade value of 1 at the top of the relative-liquidity order.

Posted margin and effective percent margin

Effective percent margin equals dollar margin divided by the contract's three-year dollar price range, then multiplied by 100. A raw percent-margin column is paired with effective percent margin so posted margin can be compared with margin scaled to each contract's three-year dollar range.

Posted vs effective percent margin on listed futures

Posted margin understates how much of each contract’s three-year dollar range the same deposit consumes. Swiss franc, natural gas and silver take the largest share of that range; eurodollars and 30-day fed funds take the smallest. Figures are copied from the April 2018 Stocks & Commodities Trading Liquidity: Futures table, in that table’s relative-liquidity order.
Posted margin understates how much of each contract’s three-year dollar range the same deposit consumes. Swiss franc, natural gas and silver take the largest share of that range; eurodollars and 30-day fed funds take the smallest. Figures are copied from the April 2018 Stocks & Commodities Trading Liquidity: Futures table, in that table’s relative-liquidity order.U.S.-listed commodity and financial futures · April 2018 front-month contracts

Effective percent margin is posted margin dollars divided by the three-year dollar range of the contract, times 100. Front-month listings are those printed in the April 2018 issue.

Share turnover as a stock analog

Equity trading activity is defined as period volume as a percentage of shares outstanding and is treated as a turnover-rate proxy for share liquidity. Share turnover is period equity volume divided by shares outstanding, used as a proxy for how readily stock can change hands.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
34 of 40 in the Volume confirmation track
201860-60 pp.Next on Volume confirmationScore listed futures as an execution menu before the setupA liquidity filter keeps only contracts with enough participation, range-adjusted size, and margin context to be entered and exited over the life of an order.
All readings on this track · 40 readings
  1. 1988Constructing volume-confirmation overlays on OHLC spreadsheet charts
  2. 1989Commodity advance-decline from delivery months
  3. 1989The most-active list as a three-layer breadth lab
  4. 1989Constructing a yield-curve volume-breadth composite
  5. 1989A bond-futures case study in support, volume, and confirmation
  6. 1989Volume-scaled price boxes and volume cycles
  7. 1990Futures-signed on-balance volume construction
  8. 1990Self-relative volume boxes for news-free breakouts
  9. 1990Broadening swings, demand tests, and volume filters
  10. 1991A same-session pressure test of breadth and volume share
  11. 1991Tick extremes that confirm double tops and bottoms
  12. 1991Constructing auction fuel from volume and open interest
  13. 1994Constructing On-balance volume with smoothing and timeframe confirmation
  14. 1996A volume-gated moving-average trend combination
  15. 1996Constructing four-state range-volume bars
  16. 1997Failed trade review of a descending-triangle breakdown
  17. 1997Construct a head-and-shoulders before the neckline break
  18. 2004Volume confirmation is not optional for a head-and-shoulders reversal
  19. 2007Constructing a three-factor volume-price confirmation filter
  20. 2007Constructing a three-condition moving-average entry with a volume filter
  21. 2008Breakout rules that wait for volume and liquidity
  22. 2011Screen futures liquidity with open interest and volume
  23. 2011Filter executable futures with liquidity and open interest
  24. 2012Rank listed futures by liquidity before a forecast chooses the name
  25. 2012Filter futures liquidity using open interest and volume
  26. 2013Pre-trade futures liquidity as an execution filter
  27. 2014A futures liquidity screen from range, open interest and volume
  28. 2014Evaluating futures contract liquidity before execution
  29. 2014Constructing defended price lines from volume clusters
  30. 2014Filter futures by equal-dollar size, open interest, and volume
  31. 2015Filter futures ideas by ranked contract liquidity
  32. 2017Screen listed futures for execution liquidity first
  33. 2017Filter futures orders by liquidity, open interest, and volume
  34. 2018Using open interest and volume to rank futures liquidity
  35. 2018Score listed futures as an execution menu before the setup
  36. 2019Filtering futures orders with liquidity, open interest and volume
  37. 2019Futures liquidity as an execution filter
  38. 2020A futures liquidity board as a pre-trade execution filter
  39. 2020Sequenced volume and golden-cross breakout rules
  40. 2020Use a listed-futures liquidity filter before execution
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