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Trading Basics: Liquidity and Volume

In the markets, liquidity ensures how easily you can buy or sell without influencing the price. As traders, we are looking to trade markets with high liquidity. When a market has high liquidity, the highest price that the buyer is prepared to pay at a certain period of time (bid) and the lowest price a seller is prepared to sell at a certain period of time (ask) will be close together. The difference in price between the bid and the ask price is called the spread. When you hear traders talking about a “tight spread” they are saying the bid price and ask price are close together.

Importance of Liquidity

Liquidity is an essential factor in deciding the success of a futures market. A futures market must have enough participants with competing price goals (buyers and sellers) to guarantee a turnover sufficiently high enough to allow the buying and offering of future contracts immediately without direct price distortion. Huge trade volumes give adaptability (liquidity) and empower traders to pick the most suitable contract month, relating to their physical delivery commitments, and to hedge the price risks that accompany these physical trades. The more offers there are to purchase and offers to sell in the market the more efficient and precise placing an order will be.

Many Futures markets satisfy all of the qualities mentioned above and as such have been successful in attracting liquidity. With regards to commodities, the liquidity of specific futures products can be measured by examining the daily trading volumes and open interest as well as the number of open long and short positions. The market is more liquid when it has a higher volume and open interest.


Volume is determined by the number of contracts traded in a market within a certain period of time. It’s the amount of successful buy and sell transactions within a period of time.

Volume is essential for a strong market, especially for day traders. If the market has low volume, there will be little to no opportunities to enter and exit the market quickly. On the opposite end, if the volume is too high, the market can become erratic and impossible to trade. Many traders use changes in volume to try and measure what directions the market may be headed in. If the market rallies but then seems to be losing volume around a certain point such as a resistance line it may be a sign that the bears (traders that believe the market will go down) are trying to take over.

However, they could easily be wrong, remember that volume shows how many traders are in the market not where the buyers or sellers are.

The top 10 liquid futures contracts (across all exchanges) are as shown below:

The top 10 liquid futures contracts particular to the Chicago Mercantile Exchange (CME) are as shown below:

1. S&P 500 E-mini (ES)

On any given day, the S&P 500 E-mini futures contract pulls in an average trading volume of more than 1.6 million contracts. Without mincing words, the S&P 500 E-mini futures contracts lead the rest.

What draws traders to it are low day trading margins and tight tick size. The S&P 500 E-mini futures contracts track the basic S&P 500 stock index consequently making it simple for speculators to gain exposure to one of the mainstream market indexes.

Because the S&P 500 trades almost all hours of the day, traders around the world can trade the contract effortlessly as the entry into the market has been simplified.

Quarter Tick Size

The S&P 500 E-mini futures contract has the small tick size of a quarter point which makes it simple for futures day traders to manage their risks with little capital requirements; the smaller tick size requires a less upfront initial investment. 

In addition to this, The S&P 500 E-mini contract is one of the friendliest contracts regarding technical analysis. This contract reacts well to key support and resistance levels.

2. 10 Year T-Notes (ZN)

The 10-year T-Note futures track the underlying cash market of the 10-year Treasury note issued by the U.S. Branch of Treasury.

Futures dealers who put resources into the 10-year T-Note have the alternative to speculate on interest rates and can run long and short with great ease. The enormous distinction between the underlying cash market and the futures market is the contract can be settled with money, so there is no physical delivery of the 10-year T-note.

While speculators find it attractive to trade interest rates, traders who have actual exposure to the underlying market can likewise hedge their risks by trading the futures derivative of the 10-year T-Note futures.

A reasonable low margin requirement also accompanies the 10-year T-Note that is particularly attractive today and swing traders.

3. Crude Oil (CL)

This is the most popular commodity in the futures contracts market. Crude oil ranks as the first among the commodity futures contracts and is the third most liquid future contract. Its contracts are traded at the New York Mercantile Trade (NYMEX) portion of the CME Group, and the futures contract tracks the underlying market.

With an average daily trade volume of almost 800,000 crude oil futures makes for a very volatile market. It is renowned for its knee-jerk reactions to news events. The crude oil futures contracts trade on a month to month basis and can be rolled over into the following month.

4. 5-Year T-notes (ZF)

The 5-year T-Note future is an alternative to the 10-year T-Note futures for market participants with exposure to the bond markets.

This future is greatly influenced by the Federal Reserve's money related policies like most short-term interest rate or Treasury instruments. The 5-year T-Note futures are offered by the Chicago Board of Options Trade (CBOT) and are institutionalized. The face value of the 5-year T-Note futures is $100,000; it has four quarterly contract months and trades almost every day.

5. Gold (GC)

Gold futures contracts are the second most popular future contracts and the fifth most liquid futures contract. The contract tracks the underlying spot gold markets.

Gold futures have a daily average trade volume of more than 300,000 and are offered by COMEX, some portion of the CME group.

Although gold futures contracts are pricey to trade, they are a well-known hedging choice against worldwide monetary currencies and poor economic situations. The greater part of the gold futures contracts are comprised of speculators who aren't actually interested in purchasing gold. There is a wide range of choices when trading gold futures contracts including micro or mini contracts, but the standard gold futures contract is the most famous.

6. Euro FX (6E)

The Euro FX futures rank at number 6 overall and first among the currency futures. The CME group offers EuroFX futures which are a part of the currency futures class of contracts.

The Euro FX futures contracts or Euro/US dollar futures contracts offer traders an appealing futures contract to gain exposure to the 27-nation single currency. The contracts in the Euro/US dollar are highly liquid and come in notional estimations of €125,000.

The E-mini and the E-micro are other adaptations of the Euro FX futures contracts. In any case, among the three, the standard euro FX futures contract is the most prevalent.

The Euro/US dollar futures contracts come in four quarterly cycles and trades almost around the clock. The Euro FX futures track the prices of the basic spot EUR/USD prices with the contracts being set apart to-market once a day.

7. 30-year T-Bonds (ZB)

Also known as T-Bond futures, it represents the 30-year maturity on interest rates. The 30-year T-Bond futures were initially launched in 1977 and are one of the commonly traded bond futures contracts across speculators, hedge funds and other market members.

The 30-year interest rates are a basic factor for deciding key rates such as mortgages.

8. Japanese Yen (6J)

The Japanese yen futures contracts give futures traders the exposure to the third biggest economy on the planet. The yen futures contracts are the inverse of the spot market prices of USD/JPY. Japanese yen futures are the second most liquid currency futures contracts.

The Japanese yen is referred to for its special trademark. The yen futures contracts control a contract size of ¥12,500,000 with a tick estimation of $6.25 and have a minimum tick of 0.0000005.

It isn't simply cash speculators who rush to the yen futures contracts but also traders and investors who have an exposure to the equity markets. In conclusion, the yen currency tends to appreciate amid times of increased vulnerability in the business sectors.

9. 2-year T-Notes (ZT)

The 2-year Treasury note futures track the basic markets of the 2-year T-note securities.

The 2-year Treasury note is third among the three interest fee futures derivatives.

2-year T-Note futures have a quarterly contract in March, June, September, and December and control a contract size of $200,000 with a base tick of 0.0078125 with the dollar estimation of each tick evaluated at $15.625.

10. Eurodollars (GE)

New traders mistake Eurodollars for Euro FX futures contracts. Eurodollars are a part of the interest-bearing bank deposits that are in U.S. dollars yet held at banks outside the United States.

The Eurodollars are alluring for financial specialists because of the way that they don't fall under the jurisdiction of the Federal Reserve. The Eurodollar futures contracts come with lower regulations. Thus, the high level of risk makes it attractive for financial investors, particularly the individuals who look for higher yields.

Eurodollar futures are accessible for ten contract month with a tick value of $6.25 with a minimum tick value size of 0.0025.

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