Market Liquidity and Depth on Floor-Traded and E-Mini Index Futures: An Analysis of the S&P 500 and Nasdaq 100

This paper aims to examine the market liquidity of regular futures and E-mini futures of CME. The bid-ask spread and market depth are explored to compare the market liquidity of floortraded futures and electronically traded futures. The bid-ask model consists of a structural equation of bid-ask spread, trading-volume, and price-volatility. This paper finds that E-mini contracts boast superior market liquidity as measured both by bid-ask spread and market depth. This finding indicates that the automated trading market is more efficient in handling orders. Moreover, the mechanism of limited order books facilitates better transparency of information regarding trading prices and volume and the continuous bidding process helps to improve the reduction of liquidity cost.

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