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The Impact of US Presidential Election on Futures Market Liquidity: Insights from Y2K to 2024

November 4, 2024

With the 2024 presidential election on the horizon, the financial markets are poised for heightened activity, particularly in futures trading. Historical data provides valuable insights into how elections influence trading dynamics, particularly in terms of volume and price movements. Understanding these patterns can help traders anticipate market behavior, optimize their strategies, and navigate the unique challenges that arise during this politically charged time. In this article, we delve into key trends from past elections, exploring how volume levels and price swings impact the futures trading landscape on and after election day.

  • Products analyzed: The most liquid contract(s) in ES (S&P E-mini), NQ (Nasdaq E-mini), GC (Gold), CL (Crude Oil), TU (2Y UST), FV (5Y UST), TY (10Y UST), UXY (Ultra 10Y), US (Long Bond), and WN (Ultra 30Y)
  • Time period (years): 2000 - 2020
  • Source: Bloomberg 

Key Observations

1. Volume Remains Steady on Election Day

Volume levels during the election day session range from 0.72x to 1.05x of the average daily volume (ADV), with GC (Gold) showing the highest levels and TU (2Y UST) the lowest.

Election Day Volume as a % of ADV:  

Red: Republicans Win I Blue: Democrats Win

2. Volume Spikes After 6 PM on Election Day and Extends into the Following Session

Volume levels surge on the day after election day, ranging between 1.23x and 3.47x of the average daily volume (ADV), with the most significant increases observed in treasury futures.

Next Day Volume as a % of ADV:

Red: Republicans Win I Blue: Democrats Win

3. The Impact of Trump’s 2016 Win on Volume Levels

When comparing volume levels between Democratic wins (Blue) and Republican wins (Red), the figures are generally consistent. However, following Donald Trump’s victory in 2016, there was a notable increase in volume across all futures contracts compared to previous presidential elections

UXY and WN were launched in 2016 and 2010 respectively
UXY and WN were launched in 2016 and 2010 respectively

4. Higher Volume Doesn’t Always Equal Greater Liquidity!

Wider price swings on election night and the next day, compared to the entire month of November, suggest that increased volume may not guarantee better liquidity. For all products analyzed, there is a broader price range on election day and the day after, indicating a higher likelihood of wider spreads during the election period, which can reduce the liquidity of the contracts.

High – Low in Ticks: Difference Between Daily High and Low Prices Expressed in Ticks

Conclusion

Given the possibility of significant fluctuations in volume and price, it’s essential to ensure your algorithmic trading strategies account for these changing conditions. BestEx Research’s s algorithms are designed to respond to real-time variations in volume, bid/ask spreads, market depth, and more. The algorithm's scheduling, passive logic, and opportunistic logic are adjusted accordingly to enhance execution and minimize slippage.

At BestEx Research, we care how you fill. We know from experience that systematic, quantitative decision-making around algorithm design contributes to globally optimal execution and results in significantly reduced execution costs. Reach out to us with questions at products@bestexresearch.com or learn more about us at bestexresearch.com
This article should not be construed as an endorsement of any political party or candidate. This article reflects the views and opinions of BestEx Research Group LLC. It does not constitute legal, tax, investment, financial, or other professional advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer to buy or sell securities, futures, or other financial instruments or to engage in financial strategies which may include algorithms. This material may not be a comprehensive or complete statement of the matters discussed herein. Nothing in this paper is a guarantee or assurance that any particular algorithmic solution fits you, or that you will benefit from it. You should consider whether our research is suitable for your particular circumstances and needs and, if appropriate, seek professional advice.