# Overnight liquidity

**FUT-06 · Equity Index Futures · Core**

**Lesson question:** Why can a small order have a large execution cost?

Original fictional examples; educational writing, not live market data, orders or production approval.

## By the end

- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.

**Prerequisites:** FUT-01

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.

## Calculation popup: Work the example

```text
Average fill=Σ(price×size)/Σ(size)
```

Use matching units and the explicitly hypothetical inputs.

1. (5×5000+5×5000.25+10×5000.50)/20=5000.3125.

2. 0.3125×50×20=312.50.

**Result:** Illustrative extra cost $312.50.

## Graph: Overnight liquidity—worked comparison

**Horizontal:** Contracts consumed  
**Vertical:** Weighted average fill (index points)

Fictional data from the written example. The chart organizes the comparison; its shape is not a forecast.

Complete numerical data are embedded in `scripts/equity-futures/FUT-06.js` and displayed as an accessible table in the HTML lesson.

## 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

### What is the weighted average of the twenty-contract example?

**Answer:** 5,000.3125.

**Why:** Weight each price by contracts filled.

### What is the critical failure to avoid?

**Answer:** A scalp sized from only the best offer can underestimate its entry and exit cost. Repeated small slippage can eliminate an apparent edge.

**Why:** Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome. **Critical risk check.**

## Takeaway

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.

## References and provenance

The cited references support definitions and conventions. The teaching prose, tickets and numerical scenarios are original; they are not attributed as historical market observations.

- [CME Introduction to Futures](https://www.cmegroup.com/education/courses/introduction-to-futures)

- [CME Micro E-mini overview](https://www.cmegroup.com/education/courses/micro-e-mini-futures/micro-e-mini-futures-products-overview)