What is the weighted average of the twenty-contract example?
Reveal the worked answer
5,000.3125.
Weight each price by contracts filled.
Equity Index Futures · FUT-06 · Core
Overnight liquidity
Why can a small order have a large execution cost?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: What is an equity index future?
Liquidity means trading the desired size promptly at a reasonable cost. Being open is not the same as being deep. Spreads, resting size, replenishment and uncertainty vary across sessions and events.
Time of day supplies context; it does not prove every overnight move is weak or every regular-session move is strong.
Understand the mechanism
Volume counts completed trades over a period. Depth describes displayed size now. Orders can change before execution and hidden liquidity can differ from the display.
A market buy may consume several offer levels. The first offer and the midpoint are not guaranteed whole-order fills. A limit controls price but may not fill.
Walk through the process
Compare size with depth, estimate round-trip costs and use session-appropriate baselines. A small target can be consumed by spread and slippage.
Before interpreting a breakout, distinguish a large net move with participation from a thin-book excursion. Neither volume nor range identifies trader intent by itself.
Operational boundary
All prices, portfolio values and account balances are fictional. Real contract calendars, broker requirements and available liquidity must be checked for the instrument actually traded. The example's mathematical hedge or payoff is not an execution guarantee.
A worked example
Offers show five contracts at 5,000.00, five at 5,000.25 and ten at 5,000.50. Consuming exactly twenty gives average 5,000.3125. Relative to the first offer, extra cost is 0.3125×50×20=312.50 before fees.
The graph plots the average price as more displayed size is consumed. Real fills can differ if the book changes during execution.
Open the calculation without leaving this lesson
Overnight liquidity—worked comparison
Vertical: Weighted average fill (index points)
Horizontal: Contracts consumed
1. Fictional example
Read the graph as a data table
| Contracts consumed | Fictional example |
|---|---|
| 5 | 5,000 |
| 10 | 5,000.12 |
| 20 | 5,000.31 |
What would invalidate the reading?
A scalp sized from only the best offer can underestimate its entry and exit cost. Repeated small slippage can eliminate an apparent edge.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
A scalp sized from only the best offer can underestimate its entry and exit cost. Repeated small slippage can eliminate an apparent edge.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: Why can a small order have a large execution cost? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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