FUTURES LIQUIDITY
Trading liquidity is often overlooked as a key technical measurement in the analysis and selection of commodity futures. The following explains how to read the futures liquidity chart published by Technical Analysis of Stocks & Commodities every month.
Commodity futures
The futures liquidity chart shown below is intended to rank publicly
traded futures contracts in order of liquidity. Relative contract liquidity
is indicated by the number of dots on the right-hand side of the chart.
This liquidity ranking is produced by multiplying contract point value times the maximum conceivable price motion (based on the past three years’ historical data) times the contract’s open interest times a factor (usually 1 to 4) for low or very high volumes. The greatest number of dots indicates the greatest activity; futures with one or no dots show little activity and are therefore less desirable for speculators.
All futures listed are weighted equally under “contracts to trade for equal dollar profit.” This is done by multiplying contract value times the maximum possible change in price observed in the last three-year period. Thus, all numbers in this column have an equal dollar value.
Columns indicating percent margin and effective percent margin provide a helpful comparison for traders who wish to place their margin money efficiently. The effective percent margin is determined by dividing the margin value ($) by the three-year price range of contract dollar value, and then multiplying by one hundred.
Stocks
Trading liquidity has a significant effect on the change in price of
a security. Theoretically, trading activity can serve as a proxy for trading liquidity and equals the total volume for a given period expressed as a percentage
of the total number of shares outstanding. This value can be thought of as the turnover rate of a firm’s shares outstanding.
Trading Liquidity: Futures |
|||||
| Commodity Futures |
Exchange | % Margin | Effective % Margin |
Contracts To Trade For Equal Dollar Profit | Relative Contract Liquidity |
|---|---|---|---|---|---|
| Mini S&P 500 Index | CME | 6.0 | 19.8 | 6 | ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••> |
| 3 Mo Euribor Interest Rate | LIFFE | 0.1 | 3.8 | 6 | •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• |
| 3 Yr. Cmmnwlth T-Bonds | SFE | 0.0 | 0.9 | 1 | ••••••••••••••••••••••••••••••••••••••••••••••••••••••••• |
| Eurodollar Interest Rate | CME | 0.1 | 9.3 | 23 | •••••••••••••••••••••••••••••••••••••••••••••••• |
| Brent Crude Oil | ICE-EU | 4.9 | 13.5 | 3 | ••••••••••••••••••••••••••••••••••••••• |
| 10 Yr Treasury Notes | CBOT | 1.1 | 8.1 | 7 | •••••••••••••••••••••••••••••••••••• |
| DJ Euro Stoxx 50 Index | EUREX | 7.2 | 29.8 | 15 | ••••••••••••••••••••••••••••••••••• |
| Natural Gas | NYM | 9.2 | 7.6 | 3 | •••••••••••••••••••••••••••••••••• |
| Gold 100 troy oz | CMX | 5.1 | 12.5 | 2 | ••••••••••••••••••••••••••••••• |
| S&P 500 Index | CME | 6.0 | 19.8 | 1 | ••••••••••••••••••••••••••••• |
| Crude Oil - Light Sweet | NYM | 6.1 | 25.9 | 6 | •••••••••••••••••••••••••••• |
| Corn | CBOT | 7.1 | 12.6 | 6 | •••••••••••••••••••••••••• |
| Soybeans 5000 bushels | CBOT | 6.1 | 12.9 | 3 | •••••••••••••••••••••••••• |
| Short Sterling | LIFFE | 0.1 | 8.4 | 17 | ••••••••••••••••••• |
| US Treasury Bonds | CBOT | 2.6 | 11.7 | 4 | •••••••••••••••••• |
| Gas Oil | ICE-EU | 4.0 | 9.3 | 3 | •••••••••••••••••• |
| 5 Yr Treasury Notes | CBOT | 0.6 | 6.6 | 11 | ••••••••••••••••• |
| Sugar-World #11 | ICE-US | 5.9 | 6.1 | 6 | ••••••••••••• |
| Mini-Nasdaq 100 Index | CME | 4.4 | 10.8 | 5 | ••••••••••••• |
| Mini Russell 2000 | CME | 7.8 | 22.1 | 4 | •••••••••••• |
| Xetra DAX-30 Stock Index | EUREX | 7.4 | 22.6 | 2 | •••••••••••• |
| Wheat - Soft Red | CBOT | 8.4 | 12.6 | 4 | ••••••••••• |
| FT-SE 100 Index | LIFFE | 5.1 | 27.8 | 7 | ••••••••••• |
| Heating Oil #2 | NYM | 4.1 | 10.8 | 3 | •••••••••• |
| Cotton #2 | ICE-US | 7.2 | 4.1 | 2 | ••••••••• |
| Silver 5000 troy oz | CMX | 9.8 | 17.2 | 1 | •••••••• |
| 10 Yr German Euro Bund | EUREX | 2.4 | 51.1 | 14 | ••••••• |
| RBOB Gas | NYM | 6.5 | 19.9 | 3 | ••••••• |
| 2 Yr Treasury Notes | CBOT | 0.2 | 5.8 | 19 | ••••••• |
| 3 Mo EuroSwiss | LIFFE | 0.0 | 1.4 | 4 | •••••• |
| Mexican Peso | CME | 8.5 | 9.4 | 3 | •••••• |
| Aust. Share Price Index | SFE | 5.4 | 40.5 | 8 | •••••• |
| Coffee C | ICE-US | 6.6 | 7.3 | 2 | ••••• |
| 2 Yr Euro Schatz | EUREX | 0.3 | 9.9 | 25 | ••••• |
| Soybean Meal | CBOT | 5.4 | 11.4 | 5 | ••••• |
| Euro Currency € | CME | 2.0 | 14.1 | 5 | ••••• |
| Cattle - Live | CME | 3.1 | 8.1 | 6 | •••• |
| Canadian Dollar | CME | 1.6 | 6.8 | 5 | •••• |
| Soybean Oil | CBOT | 5.0 | 12.1 | 9 | ••• |
| Australian Dollar | CME | 2.6 | 11.4 | 5 | ••• |
| 5 Yr German Euro BOBL | EUREX | 1.2 | 44.3 | 28 | ••• |
| Long Gilt | LIFFE | 2.5 | 43.9 | 11 | ••• |
| Swiss Market Index | EUREX | 7.4 | 26.0 | 6 | ••• |
| Japanese Yen ¥ | CME | 2.1 | 11.8 | 4 | ••• |
| CAC-40 Stock Index | MATIF | 5.4 | 29.9 | 15 | ••• |
You may note some significant changes in Futures Liquidity this month. The reasons are simple. First, one of the main parameters is based on volatility over the past years. For many interest rate-dependent futures, there has been almost no volatility in the recent past, making for a much lower multiple. Second, some futures have fallen out of favor and trade at less than 1/100th of what they did previously. Finally, some markets have become both more popular and more volatile, and vice versa.
CBOT - Chicago Board of Trade, Division of CME
CME - Chicago Mercantile Exchange including
the International Monetary Market (IMM)
CMX - Commodity Exchange, Inc. CME Group
EUREX - European Exchange, Zurich & Frankfurt
ICE-EU - Intercontinental Exchange-Futures - Europe
ICE-US - Intercontinental Exchange-Futures - US
KCBT - Kansas City Board of Trade
LIFFE - London International Financial Futures and
Options Exchange
MATIF - Marché à Terme International de France
NYM - New York Mercantile Exchange
SFE - Sydney Futures Exchange
Trading Liquidity: Futures is a reference chart for speculators. It compares markets according to their per-contract potential for profit and how easily contracts can be bought or sold (i.e., trading liquidity). Each is a proportional measure and is meaningful only when compared to others in the same column. The number in the “Contracts to Trade for Equal Dollar Profit” column shows how many contracts of one commodity must be traded to obtain the same potential return as another commodity. Contracts to Trade = (Tick $ value) x (3-year Maximum Price Excursion). “Relative Contract Liquidity” places commodities in descending order according to how easily all of their contracts can be traded. Commodities at the top of the list are easiest to buy and sell; commodities at the bottom of the list are the most difficult. “Relative Contract Liquidity” is the number of contracts to trade times total open interest times a volume factor, which is the greater of: 1 or exp (1n (volume) / 1n (5000)) - 2.