Simple Functions
GLOSSARY/TRADING

Liquidity Score

A liquidity score is a composite rating (typically A through D) that grades a market's tradeability based on spread, orderbook depth, recent volume, and historical fill rates.

CLI:sf edges --min-liquidity B

How Liquidity Scores Work

SimpleFunctions computes a liquidity score for every market it scans. This score combines multiple factors into a single letter grade, making it easy to quickly identify tradeable markets.

Scoring Components

The score is calculated from:

  1. Spread (30% weight): Tighter spreads score higher. Under 3 cents is excellent.
  2. 5-level depth (30% weight): More contracts available near the midpoint scores higher.
  3. 24h volume (20% weight): Higher recent volume indicates active participation.
  4. Open interest (10% weight): More outstanding contracts suggest a mature market.
  5. Fill rate (10% weight): How often posted orders actually fill (measured historically).

Grade Definitions

  • A: Spread < 3 cents, depth > 1,000 contracts. You can trade aggressively.
  • B: Spread < 5 cents, depth > 200 contracts. Trade with limit orders.
  • C: Spread < 10 cents, depth > 50 contracts. Small positions only.
  • D: Spread > 10 cents or depth < 50 contracts. Edge likely not executable.

Using Scores in Practice

When sf edges returns results, always filter by liquidity score first. A 20-point edge with a D-grade liquidity score is worth less than a 5-point edge with an A-grade score, because you can actually execute the latter.

The --min-liquidity flag lets you filter: sf edges --min-liquidity B shows only markets where you can reasonably execute.

Example

sf edges --min-liquidity B output:

Market                    Edge   Liq   Executable Edge
KXRECSSNBER-26           +17pt   A     ~14pt (spread + fee adjusted)
KXGDP-26Q2-TNEG         +12pt   B     ~8pt
KXUNRATE-26JUN-T5.0      +7pt   A     ~5pt

Filtered out (below B):
KXWTIMAX-26DEC31-T150   +15pt   D     ~2pt (edge exists but can't execute)

Related Terms

Executable Edge

Executable edge is edge that can actually be traded — meaning the market has sufficient liquidity, tight enough spreads, and low enough fees for you to profitably capture the mispricing.

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). It represents the cost of trading immediately.

Market Depth

Market depth is the total quantity of resting orders at each price level in the orderbook. Deep markets can absorb large trades with minimal price impact; shallow markets cannot.

Liquidity

Liquidity is the ease with which you can buy or sell a prediction market contract without significantly affecting its price. Liquid markets have tight spreads, deep orderbooks, and high trading volume.

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