Institutional Futures Trading: The 12-Point Checklist for Contract Quality

Professional investors treat futures contracts as intricate financial instruments rather than simple directional bets. Success hinges on evaluating exchange specifications, clearinghouse risks, and liquidity dynamics. The difference between seamless execution and catastrophic slippage often lies in a contract's structural quality.

Key metrics dominate institutional evaluation: Average Daily Volume (ADV) determines whether positions can be entered or exited without market impact. Open Interest (OI) sustainability reveals long-term participation depth. Bid-ask spreads at minimum tick sizes signal efficient markets, while transparent tick-to-dollar P&L relationships ensure risk calculability.

Derivatives desks scrutinize these factors before deployment. Contracts failing these benchmarks become liquidity traps—especially during volatility spikes when reliable execution matters most. The checklist serves as a pre-trade circuit breaker against operational disasters.